Question

This is a question to empiricists and econometricians out there.

Empirically how do I test how long it would take for an expansionery monetary policy to feed through to the economy and effect main macro variabel such as growth?.

e.g - what is the growth path after a 50bp cut in fed fund rates ?

Answer 1

Because the effect of a monetary policy is a long term effect it takes a long time before the effects shows up but you can check these effect using the nominal variables like output or interest rate time series data, you can choose to plot the data of these variables with years into consideration to see how there annual growth rate is doing since a monetary policy execution. Generally it takes more than a decade before an expansionary monetary policy to shows its effect because there are many other things running in an economy along with a monetary policy like taxes, individual demand, firms investment plans etc since these factors can change the scenario and way in which economy is moving the monetary policy effects does not show up quickly.