Federal Reserve Board

In this paper, we identify monetary policy shocks in structural vector autoregressions (SVARs) by imposing sign and zero restrictions on the systematic component of monetary policy while leaving the remaining equations in the system unrestricted. As in Uhlig (2005), no restrictions are imposed on the response of output to a monetary policy shock. We find that an exogenous increase in the federal funds rate leads to a persistent decline in output and prices. Our results show that the contractionary effects of monetary policy shocks do not hinge on questionable exclusion restrictions, but are instead consistent with agnostic identification schemes. The anal-ysis is robust to various specifications of the systematic component of monetary policy widely used in the literature