The dynamic effects of monetary policy: A structural factor model approach

Mario Forni, Luca Gambetti

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84 Citations (Scopus)


A structural factor model for 112 US monthly macroeconomic series is used to study the effects of monetary policy. Monetary policy shocks are identified using a standard recursive scheme, in which the impact effects on both industrial production and prices are zero. The main findings are the following. First, the maximal effect on bilateral real exchange rates is observed on impact, so that the "delayed overshooting" puzzle disappears. Second, after a contractionary shock prices fall at all horizons, so that the price puzzle is not there. Finally, monetary policy has a sizable effect on both real and nominal variables. © 2009 Elsevier B.V. All rights reserved.
Original languageEnglish
Pages (from-to)203-216
JournalJournal of Monetary Economics
Publication statusPublished - 1 Mar 2010


  • Delayed overshooting puzzle
  • Monetary policy
  • Price puzzle
  • Structural VAR
  • Structural factor model


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