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Federal Reserve Bank of Richmond
Working Paper
Structure from shocks
Michael Dotsey
Abstract

Arguments in favor of Keynesian models as opposed to real business cycle models are often made on the grounds that the correlations and impulse response patterns found in the latter are inconsistent with the data. A recent and prominent example of this reasoning is Gali (1999). But certain conclusions involve a certain joint hypothesis that implicitly assumes a certain characterization of monetary policy. This paper shows just how crucial the systematic portion of monetary policy is for interpreting many of the correlations and impulse response functions emphasized in the literature. Basically, the featured empirical facts are not useful for discerning the underlying price setting behavior of firms.


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Michael Dotsey, Structure from shocks, Federal Reserve Bank of Richmond, Working Paper 99-06, 1999.
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Keywords: Monetary policy ; Business cycles ; Financial crises ; Prices
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