Title: An analysis of monetary policy during the great moderation
Authors: Makram El-Shagi - Henan University (China) [presenting]
Logan Kelly - University of Wisonson - River Falls (United States)
Abstract: An empirical framework is developed to show the importance of money during the Great Moderation, while accounting for the fact that monetary policy was exclusively conducted through interest rates. We estimate the impulse response functions and forecast error variance decomposition derived from the LASSO-SVAR with a LASSO based lag selection. The variance decomposition suggests that a substantial component of macroeconomic variation has been driven by shocks to the money market, which were not only unintended by the Federal Reserve, but worse passed unnoticed allowing those shocks to accumulate over time.