The effects of monetary policy shocks: Evidence from the flow of funds

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Abstract

This paper assesses the impact of a monetary policy shock on the U.S. economy. Our measures of contractionary monetary policy shocks are associated with (i) a fall in various monetary aggregates and a rise in the federal funds rate, (ii) declines in different measures of real activity, (iii) sharp declines in commodity prices and a delayed decline in the GDP price deflator. In addition, net funds raised by the business sector increases for roughly a year, after which it falls. Finally, we find that households do not adjust their financial assets and liabilities for several quarters after a monetary shock.

Original languageEnglish (US)
Pages (from-to)16-34
Number of pages19
JournalReview of Economics and Statistics
Volume78
Issue number1
DOIs
StatePublished - Jan 1 1996

ASJC Scopus subject areas

  • Social Sciences (miscellaneous)
  • Economics and Econometrics

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