New VAR evidence on monetary transmission channels: temporary interest rate versus inflation target shocks

Lukmanova, Elizaveta and Rabitsch, Katrin (2018) New VAR evidence on monetary transmission channels: temporary interest rate versus inflation target shocks. Department of Economics Working Paper Series, 274. WU Vienna University of Economics and Business, Vienna.

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Abstract

We augment a standard monetary VAR on output growth, inflation and the nominal interest rate with the central bank's inflation target, which we estimate from a New Keynesian DSGE model. Inflation target shocks give rise to a simultaneous increase in inflation and the nominal interest rate in the short run, at no output expense, which stands at the center of an active current debate on the Neo-Fisher effect. In addition, accounting for persistent monetary policy changes reflected in inflation target changes improves identification of a standard temporary nominal interest rate shock in that it strongly alleviates the price puzzle.

Item Type: Paper
Keywords: Monetary policy, Neo-Fisher effect, Time-varying inflation target, DSGE, VAR
Classification Codes: JEL E12, E31, E52, E58
Divisions: Departments > Volkswirtschaft
Depositing User: Claudia Tering-Raunig
Date Deposited: 26 Nov 2018 12:26
Last Modified: 22 Oct 2019 00:41
FIDES Link: https://bach.wu.ac.at/d/research/results/88635/
URI: https://epub.wu.ac.at/id/eprint/6681

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