Monetary Shocks in the G-6 Countries : Is There a Puzzle?

Note: The following is a description of the paper and not the abstract as published in the print journal. In this paper new evidence on the transmission of monetary policy shocks across the G-6 countries is presented. Monetary shocks are identified as those that have a proportionate effect on the stock of money and the price level but with no long-run impact on output or the interest rate. The impulse response functions generally suggest that the monetary shock identified can be interpreted as a monetary policy shock. An expansionary shock leads to a rise in the stock of money, a short-run fall in the interest rate, a temporary rise in output, a rise in the price level, and a depreciation of the domestic currency. These results suggest that a simple identification technique can work well in international data. In general, the results of this study support the view that the stock of money has an active role in the transmission of monetary policy and suggest that monetary policy has a limited influence on real variables, such as real output