The effect of monetary policy shocks in the United Kingdom: an external instruments approach

Christoph Gortz, John Tsoukalas, Wei Li, Francesco Zanetti

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Abstract

This paper uses VAR analysis to identify monetary policy shocks on U.K. data using surprise changes in the policy rate as external instruments and imposing block exogeneity restrictions on domestic variables to estimate parameters from the viewpoint of the domestic economy. The results show large and persistent effects of monetary policy shocks on the domestic economy and point to the critical role of exchange rates and term premia. The analysis resolves important empirical puzzles of traditional recursive identification methods.
Original languageEnglish
JournalMacroeconomic Dynamics
Early online date9 Jan 2023
DOIs
Publication statusE-pub ahead of print - 9 Jan 2023

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