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Measuring monetary policy

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We develop and implement a general, VAR-based methodology for measuring innovations in the stance of monetary policy and their effect on the economy. Within this framework we are able to (1) perform statistical comparisons of existing proposed policy indicators, (2) derive a new indicator which is "optimal", in the sense of being most consistent with estimates of the central bank's operating procedures, and (3) compare and analyze the dynamic responses of economic variables to alternative measures of policy shocks. We also propose a new measure of the overall stance of policy (including the endogenous or anticipated part) which is consistent with our approach

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