02370cas a2200241 a 4500 AALejournalIMF022080 230101c9999 xx r poo 0 0eng d 5.00 USD 9781484378229 1018-5941 BD-DhAAL BD-DhAAL Willems, Tim. What Do Monetary Contractions Do? : Evidence From Large, Unanticipated Tightenings / Tim Willems. Washington, D.C. : International Monetary Fund, 2018. 1 online resource (29 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students As the 'Volcker shock' is believed to have generated useful information on the effects of monetary policy, this paper develops a simple procedure to identify other unanticipated monetary contractions. The approach is applied to a panel data set spanning 162 countries (over the period 1970-2017), in which it identifies 147 large monetary contractions. The procedure selects episodes where a protracted period of loose monetary policy was suddenly followed by sizeable nominal interest rate increases. Focusing on contractions of significant size increases the signal-to-noise ratio, while they are unlikely to be accompanied by confounding 'information effects' (markets interpreting a rate hike as the Central Bank being optimistic about the real side of the economy). A subsequent panel VAR analysis suggests that a 100-basis point rate hike reduces real GDP by 0.5 percent. This reduction in output seems to be persistent, pointing to a certain degree of hysteresis. The price level falls by 1.5 percent, indicating that the medium-/long-run impact of contractionary monetary shocks is not characterized by a neo-Fisherian response. Advanced economies appear to display more price stickiness than emerging/developing countries, as the former combine a more muted price response with a larger effect on output. Mode of access: Internet IMF Working Papers; Working Paper ; No. 2018/211 Full text available on IMF http://elibrary.imf.org/view/journals/001/2018/211/001.2018.issue-211-en.xml IMF e-Library