We would like to thank F. Collard, M. Dupaigne, M. Jonsson, H. Le Bihan, J. Linde, J.G. Sahuc, F. Smets, R. Wouters, and participants at Banque de France workshops and T2M conference for comments and suggestions, and S. Basu for sharing his data. Special thanks to P. Fève and an anonymous referee, whose detailed comments on an earlier draft greatly improved the paper. The remaining errors are ours. The views expressed herein are those of the authors and do not necessarily reflect those of the Banque de France.
Technology Shocks and Monetary Policy: Revisiting the Fed's Performance
Article first published online: 18 APR 2007
Journal of Money, Credit and Banking
Volume 39, Issue 2-3, pages 471–507, March–April 2007
How to Cite
AVOUYI-DOVI, S. and MATHERON, J. (2007), Technology Shocks and Monetary Policy: Revisiting the Fed's Performance. Journal of Money, Credit and Banking, 39: 471–507. doi: 10.1111/j.0022-2879.2007.00033.x
- Issue published online: 18 APR 2007
- Article first published online: 18 APR 2007
- Received August 22, 2005; and accepted in revised form April 4, 2006.
- sticky prices and wages;
- Taylor rule;
- optimal monetary policy
Would the U.S. economy's dynamic response to permanent technology shocks have been different from the actual responses if monetary authorities' systematic response to these shocks had been optimal? To answer this question, we characterize the dynamic effects of permanent technology shocks and the way in which U.S. monetary authorities reacted to these shocks over the sample 1955(1)–2002(4) using a structural VAR. A sticky price–sticky wage model is developed and estimated to reproduce these responses. We then formally compare these responses with the outcome of the optimal monetary policy.