Structural shocks and the comovements between output and interest rates

Journal of Economic Dynamics and Control, 2010, vol. 34, issue 6, 1171-1186

Abstract: Stylized facts on U.S. output and interest rates have so far proved hard to match with simple DSGE models. I estimate covariances between output, nominal and real interest rate conditional on structural shocks, since such evidence has largely been lacking in previous discussions of the output-interest rate puzzle. Conditional on shocks to technology and monetary policy, the results square with simple models. Moreover, permanent inflation shocks accounted for the counter-cyclical and inversely leading behavior of the real rate during the Great Inflation (1959-1979). Over the Great Moderation (1982-2006), technology shocks were more dominant and the real rate has been pro-cyclical.

Keywords: Interest; rates; Business; cycles; Bandpass; filter; Structural; VAR; News; shocks (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (6)

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Working Paper: Structural shocks and the comovements between output and interest rates (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:34:y:2010:i:6:p:1171-1186

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