Monetary Policy Shocks: What Have We Learned and to What End?

TLDR

The question of what follows an exogenous monetary policy shock is central to evaluating structural economic models for policy changes, yet the literature has not converged on assumptions for identifying its effects. The paper reviews recent research on the aftermath of exogenous monetary policy shocks and documents the agreement on their effects on key economic aggregates. The authors review and synthesize recent studies, documenting how different identification schemes agree on the impact of monetary policy shocks on key economic aggregates. They find that qualitative effects of monetary policy shocks are robust across many identification schemes, indicating broad agreement in the literature.

Abstract

This paper reviews recent research that grapples with the question: What happens after an exogenous shock to monetary policy? We argue that this question is interesting because it lies at the center of a particular approach to assessing the empirical plausibility of structural economic models that can be used to think about systematic changes in monetary policy institutions and rules. The literature has not yet converged on a particular set of assumptions for identifying the effects of an exogenous shock to monetary policy. Nevertheless, there is considerable agreement about the qualitative effects of a monetary policy shock in the sense that inference is robust across a large subset of the identification schemes that have been considered in the literature. We document the nature of this agreement as it pertains to key economic aggregates.