NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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The Long-Run Effects of Monetary Policy

Òscar Jordà, Sanjay R. Singh, Alan M. Taylor

NBER Working Paper No. 26666
Issued in January 2020, Revised in September 2020
NBER Program(s):Development of the American Economy, Economic Fluctuations and Growth, International Finance and Macroeconomics, Monetary Economics

Does monetary policy have persistent effects on the productive capacity of the economy? Yes, we find that such effects are economically and statistically significant and last for over a decade based on: (1) identification of exogenous monetary policy fluctuations using the trilemma of international finance; (2) merged data from two new international historical cross-country databases reaching back to the nineteenth century; and (3) econometric methods robust to long-horizon inconsistent estimates. Notably, the capital stock and total factor productivity (TFP) exhibit strong hysteresis, whereas labor does not; and money is non-neutral for a much longer period of time than is customarily assumed. We show that a New Keynesian model with endogenous TFP growth can reconcile these empirical findings.

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Document Object Identifier (DOI): 10.3386/w26666

 
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