Monetary Policy Innovation Paradox in VARs: A Discrete Explanation

Resource Type
Dataset : survey data
  • Dueker, Michael J. (Federal Reserve Bank of St. Louis)
Other Title
  • Version 1 (Subtitle)
Publication Date
Free Keywords
monetary policy
  • Abstract

    Monetary policy shocks derived from VARs often suggest that monetary policymakers regularly react to an unexpected increase that they induced in the federal funds rate with additional increases. This puzzling pattern can be called the "policy innovation paradox" because there is no obvious explanation for such a pattern. This article shows that the policy innovation paradox is most likely the artifact of failing to account for the discreteness of changes that policymakers make to the target federal funds rate. Misspecified VARs that fail to account for discrete target changes imply the policy innovation paradox, whereas a model that uses information from discrete policy changes does not.
  • Table of Contents


    • DS1: Dataset
Geographic Coverage
  • United States
Collection Mode
  • The submitted zip file opens to the data and program files. These data are part of ICPSR's Publication-Related Archive and are distributed exactly as they arrived from the data depositor. ICPSR has not checked or processed this material. Users should consult the investigator(s) if further information is desired.

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Alternative Identifiers
  • 1262 (Type: ICPSR Study Number)

Update Metadata: 2015-08-05 | Issue Number: 6 | Registration Date: 2015-06-15