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Paper #1638

The effects of conventional and unconventional monetary policy: A new approach
Atsushi Inoue i Barbara Rossi
Octubre 2018
We propose a new approach to analuze economic shocks. Our new procedure identifies economic shocks as exogenous shifts in a function; hence, we call the "functional shocks". We show how to identify such shocks and how to trace their effects in the economy via VARs using a procedure that we call "VARs with finctional shocks". Using our new procedire, we address the crucial question of studying the effects or monetary policy by identifying monetary policy shocks as shifts in the shole term structure of government bond yields in a narrow window of time around monetary policy announcements. Our identification sheds new light on the effects of monetary policy shocks, both in conventional and unconventional periods, and shows that traditional identification procedires may miss important effects. We find that, overall, unconventional monetary policy has similar effects to conventional expansionary monetary policy, leading to an increase in both output growth and inflation; the response is hump-shaped; peaking around oneyear to one year and a half after the shock. The new procedire has the advantage of identifying monetary policy shocks during both conventional and unconventional monetary policy periods in a unified manner and can be applied more generally to other economic shocks.
Paraules clau:
Shock identification, VARs, zero-lower bound, unconventional monetary policy, forward guidance.
Codis JEL:
E4, E52, E21, H31, I3, D1
Àrea de Recerca:
Macroeconomia i Economia Internacional / Estadística, Econometria i Mètodes Quantitatius

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