The dynamic effects of monetary policy: A structural factor model approach |
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Authors: | Mario Forni Luca Gambetti |
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Institution: | a Dipartimento di Economia Politica, Università di Modena e Reggio Emilia, CEPR and RECent, via Berengario 51, 41100 Modena, Italy b Universitat Autonoma de Barcelona and RECent, Spain |
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Abstract: | A structural factor model for 112 US monthly macroeconomic series is used to study the effects of monetary policy. Monetary policy shocks are identified using a standard recursive scheme, in which the impact effects on both industrial production and prices are zero. The main findings are the following. First, the maximal effect on bilateral real exchange rates is observed on impact, so that the “delayed overshooting” puzzle disappears. Second, after a contractionary shock prices fall at all horizons, so that the price puzzle is not there. Finally, monetary policy has a sizable effect on both real and nominal variables. |
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Keywords: | Delayed overshooting puzzle Monetary policy Price puzzle Structural factor model Structural VAR |
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