monetary policy shocks: what have we learned …lawrence j. christiano, martin eichenbaum and...

MONETARY POLICY SHOCKS: WHATHAVE WE LEARNED AND TO WHAT END?

Lawrence J. ChristianoMartin Eichenbaum

Charles L. Evans

Working Paper 6400

NBER WORKING PAPER SERIES

MONETARY POLICY SHOCKS: WHATHAVE WE LEARNED AND TO WHAT END?

Lawrence J. ChristianoMartin Eichenbaum

Charles L. Evans

Working Paper 6400http://www.nber.org/papers/w6400

NATIONAL BUREAU OF ECONOMIC RESEARCH1050 Massachusetts Avenue

Cambridge, MA 02138February 1998

We thank Wendy Edelberg for superb research assistance. This work has been supported by a grantfrom the National Science Foundation to the National Bureau of Economic Research. The viewsexpressed herein are those of the authors and not necessarily those of the Federal Reserve Bank ofChicago, the Federal Reserve System or the National Bureau of Economic Research.

© 1998 by Lawrence J. Christiano, Martin Eichenbaum and Charles L. Evans. All rights reserved.Short sections of text, not to exceed two paragraphs, may be quoted without explicit permissionprovided that full credit, including © notice, is given to the source.

Monetary Policy Shocks: What Have We Learnedand to What End?Lawrence J. Christiano, Martin Eichenbaumand Charles L. EvansNBER Working Paper No. 6400February 1998JEL Nos. E3, E4

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.

Lawrence J. Christiano Martin EichenbaumDepartment of Economics Department of EconomicsNorthwestern University Northwestern UniversityEvanston, IL 60208 Evanston, IL 60208and NBER and NBERl-christiano@nwu.edu eich@nwu.edu

Charles L. EvansFederal Reserve Bank of Chicago230 South LaSalle StreetChicago, IL 60604cevans@frbchi.org