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2020-01 | January 2020

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The Long-Run Effects of Monetary Policy

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Is the effect of monetary policy on the productive capacity of the economy long lived? Yes, in fact we find such impacts are significant and last for over a decade based on: (1) merged data from two new international historical databases; (2) identification of exogenous monetary policy using the macroeconomic trilemma; and (3) improved econometric methods. Notably, the capital stock and total factor productivity (TFP) exhibit hysteresis, but labor does not. Money is non-neutral for a much longer period of time than is customarily assumed. A New Keynesian model with endogenous TFP growth can reconcile all these empirical observations.

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Article Citation

Jordà, Òscar, Sanjay R. Singh, and Alan M. Taylor. 2020. "The Long-Run Effects of Monetary Policy," Federal Reserve Bank of San Francisco Working Paper 2020-01. Available at https://doi.org/10.24148/wp2020-01