How Persistent Are Unconventional Monetary Policy Effects?

RePEc Short ID: pne3
ORCID iD: 0000-0003-2852-9419

Neely, Christopher J.

doi:10.20955/wp.2014.004

Working Paper Revision

How Persistent Are Unconventional Monetary Policy Effects?

Abstract: This paper argues that one cannot precisely estimate the persistence of unconventional monetary policy (UMP) effects, especially with short samples and few observations. To make this point, we illustrate that the most influential model on the topic exhibits structural instability, and sensitivity to specification and outliers that render the conclusions unreliable. Restricted models that respect more plausible asset return predictability are more stable and imply that UMP shocks were persistent. Estimates of the dynamic effects of shocks should respect the limited predictability in asset prices.

Keywords: Federal Reserve; monetary policy; quantitative easing; large-scale asset purchases; VAR; forecasting; structural breaks; good deal;

JEL Classification: C30; E43; E47; E52;

https://doi.org/10.20955/wp.2014.004

Status: Published in Journal of International Money and Finance