Chapter

Global Forces and Monetary Policy Effectiveness

Edited by Jean Boivin and Marc P. Giannoni

in International Dimensions of Monetary Policy

Published by University of Chicago Press

Published in print March 2010 | ISBN: 9780226278865
Published online February 2013 | e-ISBN: 9780226278872 | DOI: http://dx.doi.org/10.7208/chicago/9780226278872.003.0009
Global Forces and Monetary Policy Effectiveness

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This chapter develops a Factor-Augmented VAR to describe the role played by international factors in the U.S. economic fluctuations and in the transmission mechanism of U.S. monetary policy. A small number of domestic and foreign latent factors that is common to a large set of the U.S. and non-U.S. variables are identified and estimated. The chapter subsequently models those factors by means of a standard VAR. The analysis uncovers a small role for international factors in accounting for fluctuations in the U.S. variables. It has been found that the role appears to be changed over time for some variables, but not always in the upward direction that popular accounts of the impact of the process of globalization on domestic economic performance might suggest.

Keywords: Factor-Augmented VAR; monetary policy; transmission mechanism; globalization; economic performance

Chapter.  23742 words.  Illustrated.

Subjects: Macroeconomics and Monetary Economics

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