Skip to main content Accessibility help
Hostname: page-component-cf9d5c678-7bjf6 Total loading time: 1.393 Render date: 2021-08-05T01:38:41.448Z Has data issue: true Feature Flags: { "shouldUseShareProductTool": true, "shouldUseHypothesis": true, "isUnsiloEnabled": true, "metricsAbstractViews": false, "figures": true, "newCiteModal": false, "newCitedByModal": true, "newEcommerce": true, "newUsageEvents": true }


Published online by Cambridge University Press:  13 April 2006

Princeton University
Federal Reserve Bank of Atlanta


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.

© 2006 Cambridge University Press

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)


Altug S. 1989 Time-to-build and aggregate fluctuations: some new evidence. International Economic Review 30, 889920.Google Scholar
Athreya K.B. 2002 Welfare implications of the Bankruptcy Reform Act of 1999. Journal of Monetary Economics 49 (8), 15671595.Google Scholar
Ball L. and N.G. Mankiw 1995 Relative-Price Changes As Aggregate Supply Shocks. Quarterly Journal of Economics 110, 161193.Google Scholar
Bernanke B. and A. Blinder 1992 The federal funds rate and the channels of monetary transmission. American Economic Review 82, 901921.Google Scholar
Bernanke B. and I. Mihov 1998 Measuring monetary policy. Quarterly Journal of Economics 113 (3), 869902.Google Scholar
Bernanke B.S., M. Gertler, and M.W. Watson 1997 Systematic monetary policy and the effects of oil price shocks. Brookings Papers on Economic Activity 1, 91142.Google Scholar
Chatterjee S., D. Corbae, M. Nakajima, and J.-V. Rios-Rull 2002 A Quantitative Theory of Unsecured Consumer Credit with Risk of Default. Federal Reserve Bank of Philadelphia working paper 02-6.
Cho J.-O. 1993 Money and business cycles with one-period nominal contracts. Canadian Journal of Economics 26, 638659.Google Scholar
Christiano L., M. Eichenbaum, and C. Evans 1996 The effects of monetary policy shocks: some evidence from the flow of funds. Review of Economics and Statistics 78 (1), 1634.Google Scholar
Christiano L., M. Eichenbaum, and C. Evans 1999 Monetary policy shocks: What have we learned and to what end? In J.B. Taylor and M. Woodford (ed.), Handbook of Macroeconomics, vol. 1A, pp. 65148. Amsterdam: North-Holland.
Cushman D.O. and T. Zha 1997 Identifying monetary policy in a small open economy under flexible exchange rates. Journal of Monetary Economics 39, 433448.Google Scholar
DelNegro M. and F. Schorfheide 2004 Priors from general equilibrium models for VARs. International Economic Review 45, 643673.Google Scholar
Evans C.L. and D.A. Marshall 1998 Monetary policy and the term structure of nominal interest rates: evidence and theory. Carnegie-Rochester Conference Series on Public Policy 49, 53111.Google Scholar
Evans C.L. and D.A. Marshall 2004 Economic Determinants of the Nominal Treasury Yield Curve. Manuscript, Federal Reserve Bank of Chicago.
Faust J. 1998 The robustness of identified VAR conclusions about money. Journal of Monetary Economics 49, 207244.Google Scholar
Fernandez-Villaverde J., J. Rubio-Ramirez, and T. J. Sargent 2005 A, B, C, and Ds for Understanding VARs. Federal Reserve Bank of Atlanta working paper 2005-9.
Gordon D.B. and E.M. Leeper 1994 The dynamic impact of monetary policy: an exercise in tentative identification. Journal of Political Economy 102, 12281247.Google Scholar
Hamilton J.D. and A.M. Herrera 2004 Oil shocks and aggregate macroeconomic behavior: the role of monetary policy. Journal of Money, Credit, and Banking 36, 265286.Google Scholar
Hanson M.S. 2004 The “Price Puzzle” Reconsidered. Journal of Monetary Economics 51 (7), 13851413.Google Scholar
Hurwicz L. 1962 On the structural form of interdependent systems. In Ernest Nagel, P. Suppes, and A. Tarski (eds.), Logic, Methodology and Philosophy of Science, Proceedings of the 1960 International Congress, pp. 232239. Stanford: Stanford University Press.
Ingram B.F. and C.H. Whiteman 1994 Supplanting the “Minnesota” prior: forecasting macroeconomic time series using real business cycle model priors. Journal of Monetary Economics 34 (3), 497510.Google Scholar
Kim S. 1999 Does monetary policy matter in the G-7 countries? using common identifying assumptions about monetary policy across countries. Journal of International Economics 45, 355386.Google Scholar
Kim S. and N. Roubini 2000 Exchange rate anomalies in the industrial countries: a solution with a structural VAR approach. Journal of Monetary Economics 45, 561586.Google Scholar
Leeper E.M. 1991 Equilibria under “Active” and “Passive” monetary and fiscal policies. Journal of Monetary Economics 27, 129147.Google Scholar
Leeper E.M. and C.A. Sims 1994 Toward a modern macroeconomic model usable for policy analysis. NBER Macroeconomics Annual, 81117.Google Scholar
Leeper E.M., C.A. Sims, and T. Zha 1996 What does monetary policy do? Brookings Papers on Economic Activity 2, 178.Google Scholar
Li W. and P.-D. Sarte 2003 The Macroeconomics of U.S. Consumer Bankruptcy Choice: Chapter 7 or Chapter 13? Federal Reserve Banks of Philadelphia and Richmond working papers.
Obstfeld M. and K. Rogoff 1995 Exchange rate dynamics redux. Journal of Political Economy 103 (3), 624660.Google Scholar
Romer C.D. and D.H. Romer 1989 Does monetary policy matter? a new test in the spirit of Friedman and Schwartz. NBER Macroeconomics Annual 4, 121170.Google Scholar
Sims C.A. 1982 Policy analysis with econometric models. Brookings Papers on Economic Activity 1, 107164.Google Scholar
Sims C.A. 1986 Are forecasting models usable for policy analysis? Federal Reserve Bank of Minneapolis Quarterly Review 10, 216.Google Scholar
Sims C.A. 1989 Models and their uses. American Journal of Agricultural Economics 71, 489494.Google Scholar
Sims C.A. 1992 Interpreting the macroeconomic time series facts: the effects of monetary policy. European Economic Review 36, 9751011.Google Scholar
Sims C.A. 2001 Solving linear rational expectations models. Computational Economics 20 (1–2), 120, Scholar
Sims C.A. and T. Zha 1999 Error bands for impulse responses. Econometrica 67 (5), 11131156.Google Scholar
Smets F. and R. Wouters 2003 Shocks and Frictions in US and Euro Area Business Cycles: A Bayesian DSGE Approach. European Central Bank and National Bank of Belgium, discussion paper.
Strongin S. 1995 The identification of monetary policy disturbances: explaining the liquidity puzzle. Journal of Monetary Economics 35 (3), 463497.Google Scholar
Watson M. 1993 Measures of fit for calibrated models. Journal of Political Economy 101, 10111041.Google Scholar
Zha T. 2001 Bankruptcy law, capital allocation, and aggregate effects: a dynamic heterogeneous agent model with incomplete markets. Annals of Economics and Finance 2, 379400.Google Scholar
Cited by

Send article to Kindle

To send this article to your Kindle, first ensure is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about sending to your Kindle. Find out more about sending to your Kindle.

Note you can select to send to either the or variations. ‘’ emails are free but can only be sent to your device when it is connected to wi-fi. ‘’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

Available formats

Send article to Dropbox

To send this article to your Dropbox account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Dropbox.

Available formats

Send article to Google Drive

To send this article to your Google Drive account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Google Drive.

Available formats

Reply to: Submit a response

Please enter your response.

Your details

Please enter a valid email address.

Conflicting interests

Do you have any conflicting interests? *