Working Paper

What explains the varying monetary response to technology shocks in G-7 countries?

Abstract: In a recent paper, Gal, Lpez-Salido, and Valls (2003) examined the Federal Reserve?s response to VAR-identified technology shocks. They found that during the Martin-Burns- Miller era, the Fed responded to technology shocks by overstabilizing output, while in the Volcker-Greenspan era, the Fed adopted an inflation-targeting rule. We extend their analysis to countries of the G-7; moreover, we consider the factors that may contribute to differing monetary responses across countries. Specifically, we find a relationship between the volatility of capital investment, type of monetary policy rule, the responsiveness of the rule to output and inflation fluctuations, and the response to technology shocks.

Keywords: Technology; Monetary policy; Taylor's rule;

Status: Published in International Journal of Central Banking, December 2005, 1(3), pp. 33-71

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2005

Number: 2004-002