What do the VARs Mean? Measuring the Output Effects of Monetary Policy
Journal of Monetary Economics 41:2 April 1998 277-300 (Revision of NBER WP 5154 June 1995; (Manuscript). Responses to monetary policy shocks seem long and drawn out. Do we need models with extensive frictions? No, because the response of policy to policy shocks is also drawn out. If you allow expected policy to affect output and inflation, you can make sense of drawn out impulse-response functions with a very short structural response, but a long-lasting impulse.