What does a Monetary Policy Shock Do? An International Analysis with Multiple Filters


  • We thank Christopher Bowdler (Editor) and two anonymous referees for detailed comments and useful suggestions. We also thank Fabio Canova, Filippo Ferroni, Philip Liu, and Christophe Rault for detailed comments and suggestions on an earlier draft, and Carl Walsh for fruitful discussions on some preliminary results. We are grateful to Carlo Altavilla, Gianluca Cubadda, Huw Dixon, Martin Ellison, Michel Juillard, Juha Kilponen, Fabrizio Mattesini, Giulio Nicoletti, Paolo Paesani, Tommaso Proietti, Antti Ripatti, Vanessa Smith, Jouko Vilmunen, Matti Virén, and participants at presentations held at University of Helsinki, Bank of Finland, Computational Management and Science 2009 (Geneva), AngloFrenchItalian Workshop 2009 (Birkbeck College), University of Rome ‘Tor Vergata’, and ASSET 2009 (Istanbul) for providing us with useful feedbacks. Part of this research was conducted while the corresponding author was visiting the Department of Economics of the University of California at Santa Cruz, whose kind hospitality is gratefully acknowledged. All remaining errors are ours. The opinions expresses in this paper do not necessarily reflect those of the Bank of Finland. Financial support by the Italian Ministry of University and Research (PRIN 2009-N. 2009BL8BEF_001) and the University of Padova is gratefully acknowledged.


What does a monetary policy shock do? We answer this question by estimating a new-Keynesian monetary policy dynamic stochastic general equilibrium model for a number of economies with a variety of empirical proxies of the business cycle. The effects of two different policy shocks, an unexpected interest rate hike conditional on a constant inflation target and an unpredicted drift in the inflation target, are scrutinized. Filter-specific Bayesian impulse responses are contrasted with those obtained by combining multiple business cycle indicators. Our results document the substantial uncertainty surrounding the estimated effects of these two policy shocks across a number of countries.