Regime-dependent Effects Of Monetary Policy Shocks. Evidence From Threshold Vector Autoregressions
This paper studies regime dependence in the effects of monetary policy shocks for the U.S. using a threshold vector autoregressive model. In a high inflation regime the standard results from the literature obtain. In a low inflation regime output shows no significant response to monetary policy while the inflation response is negative. The paper endogenously determines two distinct regimes, while the literature thus far only considers alternative subsamples. Since the mid 1990s a very successful research program has studied the effects of monetary policy on macroeconomic variables. These effects have been identified by estimating the dynamic responses of output, inflation and other variables to "Monetary policy shocks" in Vector AutoRegressive (VAR) models of the economy.