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Monetary disturbances matter for business fluctuations in the G-7

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  • Canova, Fabio
  • Nicolo, Gianni De

Abstract

This paper examines the importance of monetary disturbances for cyclical fluctuations in real activity and inflation. It employs a novel identification approach which uses the sign of the cross-correlation function in response to shocks to assign a structural interpretation to orthogonal innovations. We find that monetary shocks significantly drive output and inflation cycles in all G-7 countries; that they are the dominant source of fluctuations in three of the seven countries; that they contain an important policy component, and that their impact is time varying.
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  • Canova, Fabio & Nicolo, Gianni De, 2002. "Monetary disturbances matter for business fluctuations in the G-7," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1131-1159, September.
    • Handle: RePEc:eee:moneco:v:49:y:2002:i:6:p:1131-1159
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