Structural changes in the US economy: is there a role for monetary policy?

Abstract

This paper investigates the contribution of monetary policy to the changes in output growth and inflation dynamics in the US. We identify a policy shock and a policy rule in a time-varying coefficients VAR using robust sign restrictions. The transmission of policy shocks has been relatively stable. The variance of the policy shock has decreased over time, but policy shocks account for a small fraction of the level and of the variations in inflation and output growth volatility and persistence. We find little evidence of a significant increase in the long run response of the interest rate to inflation. A more aggressive inflation policy in the 1970s would have produced large output growth costs.Monetary policy, Inflation persistence, Transmission of shocks, Time varying coefficients structural VARs