Monetary Policy Shocks: What Have We Learned and to What End?

Divergent Emerging Market Economy Responses to Global and Domestic Monetary Policy Shocks

“…In our study, output immediately declines after domestic and US monetary tightening, but inflation reacts more slowly to domestic monetary shocks. Our finding that output growth responses precede inflation responses is similar to major studies based on US data (for example , Christiano Eichenbaum, andEvans 1999 and2005).…”

“…Domestic policy tightening brings about a sluggish reaction in prices, consistent with earlier findings on the effect of US monetary shocks on inflation, as in Romer and Romer (2004) and Christiano, Eichenbaum, and Evans (1999), whereas US policy tightening entails an immediate fall in inflation in EMEs. These contrasting reactions may be attributable to different patterns in pricing.…”

“…The first supposes a 1 percentage point hike in the US federal funds rate; and the second scenario entails a 1 percentage point increase in the US real interest rate on top of the increased federal funds rate. The second scenario reflects the slow response of US inflation to monetary tightening, as observed in Romer and Romer (2004) and Christiano, Eichenbaum, and Evans (1999). The first scenario brings about a shock tantamount to 58% of the standard deviation of the policy-driven factor; and the shock of the second scenario corresponds to 87% of the standard deviation.…”

Monetary Policy, Inflation and the Level of Economic Activity in Brazil after the Real Plan: Stylized Facts from Svar Models

“…36 We will not present and discuss the parameters estimates of the model because of the difficulties associated with their interpretation, specially the estimates of the central bank reaction function. See Christiano et al (1999) for a discussion of the pitfalls in interpreting estimated monetary policy rules. The impulse response functions (IRFs) displayed on figure 9 37 show that output and money fall in response to a positive SELIC shock.…”

“…The fact that output and prices have no contemporaneous effect over the SELIC rate may be associated with the difficulty of obtaining information on the current level of output and price level by the time policy makers have to make their decisions, an assumption made, for example, by Sims and Zha (2006). 41 Christiano et al (1999) refer to this assumption as the recursiveness assumption. It implies that economic variables within the period are determined in a block recursive way: first, the variables of the goods market are determined; second the Central Bank sets its instrument; and third, the remaining variables are determined.…”