The long-run effects of monetary policy
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`
Oscar Jord`a
†
Sanjay R. Singh
§
Alan M. Taylor
‡
May 2023
Abstract
We document that the real effects of monetary shocks last for over a decade. Our approach
relies on (1) identification of exogenous and non-systematic monetary shocks using the
trilemma of international finance; (2) merged data from two new international historical
cross-country databases; and (3) econometric methods robust to long-horizon inconsistent
estimates. Notably, the capital stock and total factor productivity (TFP) exhibit greater
hysteresis than labor. When we allow for asymmetry, we find these effects with tightening
shocks, but not with loosening shocks. When extending the horizon of the responses
reported in several recent studies that use alternative monetary shocks, we find similarly
persistent real effects, thus supporting our main findings.
JEL classification codes: E01, E30, E32, E44, E47, E51, F33, F42, F44.
Keywords: monetary policy, money neutrality, hysteresis, trilemma, instrumental variables,
local projections.
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We are thankful to Sushant Acharya, George-Marios Angeletos, Gadi Barlevy, Susanto Basu, Saki Bigio,
Edouard Challe, Lawrence Christiano, James Cloyne, Julian di Giovanni, St´ephane Dupraz, Martin Eichenbaum,
Charles Engel, Gauti Eggertsson, Antonio Fat´as, John Fernald, Luca Fornaro, Jordi Gal´ı, Georgios Georgiadis,
Yuriy Gorodnichenko, Pierre-Olivier Gourinchas, James Hamilton, Oleg Itskhoki, Jean-Paul L’Huillier, Silvia
Miranda-Agrippino, Dmitry Mukhin, Juan Pablo Nicolini, Pascal Paul, Albert Queralto, Valerie Ramey, Ina
Simonovska, J´on Steinsson, Andrea Tambalotti, Silvana Tenreyro, Mart´ın Uribe, Johannes Wieland, who
provided very helpful comments and suggestions, as did many seminar and conference participants at the
Barcelona Summer Forum, the NBER Summer Institute IFM and EFCE Program Meetings, the Econometric
Society World Congress, the SED Annual Meeting, the ASSA Meetings, Bank of England, the Federal Reserve
Banks of Richmond, San Francisco, St. Louis, and Board of Governors, CEPR MEF Seminar Series, the Midwest
Macro Conference, Northwestern University, Delhi School of Economics, ISI Delhi, IGIDR Mumbai, Salento
Macro, Claremont McKenna College, the Swiss National Bank, the Bank of Spain, the Norges Bank, the Bank
of Finland, Danmarks Nationalbank, Columbia SIPA, UC Berkeley, UC Davis, UC Irvine, UCLA, UC San
Diego, University of Wisconsin–Madison, Universit¨at Z¨urich, Vanderbilt University, Asian School of Business,
and Trinity College, Dublin. Antonin Bergeaud graciously shared detailed data from the long-term productivity
database created with Gilbert Cette and R´emy Lecat at the Banque de France. All errors are ours. The views
expressed herein are solely those of the authors and do not necessarily represent the views of the Federal Reserve
Bank of San Francisco or the Federal Reserve System.
†
Federal Reserve Bank of San Francisco and Department of Economics, University of California, Davis
§
Federal Reserve Bank of San Francisco and Department of Economics, University of California, Davis
‡
Columbia University; NBER; and CEPR (amt2314@columbia.edu).