DP5457 Structural Changes in the US Economy: Bad Luck or Bad Policy?

Author(s): Fabio Canova, Luca Gambetti
Publication Date: January 2006
Keyword(s): inflation persistence, monetary policy, structural VARs, time varying coefficients, transmission of shocks
JEL(s): C53, E47, E52
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5457

This paper investigates the relationship between time variations in output and inflation dynamics and monetary policy in the US. There are changes in the structural coefficients and in the variance of the structural shocks. The policy rules in the 1970s and 1990s are similar as is the transmission of policy disturbances. Inflation persistence is only partly a monetary phenomena. Variations in the systematic component of policy have limited effects on the dynamics of output and inflation. Results are robust to alterations in the auxiliary assumptions.