The transmission of monetary policy shocks

Working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 21 April 2017

Working Paper No. 657
By Silvia Miranda-Agrippino and Giovanni Ricco

Despite years of research, there is still uncertainty around the effects of monetary policy shocks. We reassess the empirical evidence by combining a new identification that accounts for informational rigidities, with a flexible econometric method robust to misspecifications that bridges between VARs and Local Projections. We show that most of the lack of robustness of the results in the extant literature is due to compounding unrealistic assumptions of full information with the use of severely misspecified models. Using our novel methodology, we find that a monetary tightening is unequivocally contractionary, with no evidence of either price or output puzzles.

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