Monetary policy shocks, Choleski identification, and DNK models

Charles Carlstrom, Timothy Fuerst and Matthias Paustian

Journal of Monetary Economics, 2009, vol. 56, issue 7, 1014-1021

Abstract: A popular identifying assumption in structural VAR studies is that the monetary policy shock does not affect macroeconomic variables contemporaneously. We examine the consequences of using this identification strategy when the data-generating process is a basic Dynamic New Keynesian (DNK) model but without these assumed time delays. The principle conclusion is that the standard Choleski assumption can severely distort the impulse response functions, producing price puzzles and muted responses of inflation and the output gap to monetary shocks.

Keywords: Choleski; identification; Vector; auto; regression; Dynamic; new; keynesian; model (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (56)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:56:y:2009:i:7:p:1014-1021

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