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

Elizaveta Lukmanova, Katrin Rabitsch-Schilcher

Publication: Working/Discussion PaperWU Working Paper

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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.
Original languageEnglish
Publication statusPublished - 2018

Publication series

NameDepartment of Economics Working Paper Series
No.274

Austrian Classification of Fields of Science and Technology (ÖFOS)

  • 502046 Economic policy
  • 502047 Economic theory
  • 502018 Macroeconomics

WU Working Paper Series

  • Department of Economics Working Paper Series

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