Revisiting the Macroeconomic Effects of Monetary Policy Shocks

This study re-evaluates the macroeconomic impact of monetary policy shocks in the United States using the proxy-SVAR approach of Gertler and Karadi (American Economic Journal: Macroeconomics, 2015, 7, 44-76). Despite increased credit costs and the presence of the credit channel, our analysis reveals modest effects on economic activity post-mid-1980s. This robust finding holds across various inference methods and sample considerations. A counterfactual analysis within the framework of Bernanke, Gertler, and Gilchrist (1999, Handbook of Macroeconomics, Elsevier) suggests that a stronger response to inflation in monetary policy execution may explain the subdued impact of shocks, offering valuable insights for policy refinement and understanding the dynamics of economic activity.