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DOES MONETARY POLICY GENERATE RECESSIONS?

Published online by Cambridge University Press:  13 April 2006

CHRISTOPHER A. SIMS  and
TAO ZHA
CHRISTOPHER A. SIMS
Affiliation:
Princeton University
TAO ZHA
Affiliation:
Federal Reserve Bank of Atlanta
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Abstract

We consider two kinds of answers to the title question: Do random shifts in monetary policy account for historical recessions, and would changes in the systematic component of monetary policy have allowed reductions in inflation or output variance without substantial costs. The answer to both questions is no. We use weak identifying assumptions and include extensive discussion of these assumptions, including a completely specified dynamic stochastic equilibrium model in which our identifying assumptions can be shown to be approximately satisfied.

Keywords

Monetary PolicyIdentificationStructural VAR

Information

Type
VINTAGE ARTICLE
Information
Macroeconomic Dynamics , Volume 10 , Issue 2 , April 2006 , pp. 231 - 272
Copyright
© 2006 Cambridge University Press

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