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  4. October 2016
  5. The Macroeconomic Effects of Monetary Policy: A New Measure for the United Kingdom

American Economic Journal:
Macroeconomics

ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)

The Macroeconomic Effects of Monetary Policy: A New Measure for the United Kingdom

  • James Cloyne
  • Patrick Hürtgen
American Economic Journal: Macroeconomics
vol. 8, no. 4, October 2016
(pp. 75–102)
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Abstract

This paper estimates the effects of monetary policy based on a new, extensive real-time dataset for the United Kingdom. Employing the Romer-Romer identification approach we construct a new measure of monetary policy innovations and find that a 1 percentage point increase in the policy rate reduces output by 0.6 percent and inflation by up to 1 percentage point after 2 to 3 years. Our use of forecast data is shown to be crucial and that their omission generates the well-known price puzzle. Our estimates are more comparable to the wider VAR literature but we also reconcile our findings with the Romer-Romer estimates for the United States.

Citation

Cloyne, James, and Patrick Hürtgen. 2016. "The Macroeconomic Effects of Monetary Policy: A New Measure for the United Kingdom." American Economic Journal: Macroeconomics, 8 (4): 75–102. DOI: 10.1257/mac.20150093

Additional Materials

JEL Classification

  • E23 Macroeconomics: Production
  • E31 Price Level; Inflation; Deflation
  • E32 Business Fluctuations; Cycles
  • E52 Monetary Policy
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