El-Shagi, Makram / Kelly, Logan J.



In this article, we develop an empirical framework to shwo the importance of money during the Great Moderation, while accounting for the fact that monetary policy was exlusively conducted through interest rates. We estimate the impulse response functions and forecast error variance decomposition derived from a structural VAR with a laest absolute shrinkage and selection operator-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 accumlate over time.


Monetary policyGreat Moderation, Monetary AggregatesSVARLASSO


El-Shagi, M. / Kelly, L.J.: For They Know Not What They Do – Monetary Policy During the Great Moderation, Applied Economics Letters, Vol. 24 (10), pp. 717-721, 2017