Long-run Effects of Monetary Policy Shocks: An Empirical Investigation for the US

The main purpose of the thesis is to investigate if the monetary policy shocks and information shocks may generate long term effects via a significant response of noncyclical unemployment rate (nrou) in the United States referred to as "hysteresis”. Cholesky (recursive) VAR model is employed in a study, using quarterly data from the Federal Reserve Economic Data (FRED) spanning from 1991Q1 to 2015Q4. The analysis focuses on examining the dynamic effects of policy shocks through the application of impulse response functions (IRFs). Overall, the response of unemployment to monetary policy shocks tends to have a positive effect, while the response to information shocks exhibits a negative effect in the long run. Additionally, the study investigates the impact of these two shocks on other variables including output (Gross Domestic Product), inflation (Implicit Price Deflator), short-term treasury bills, and long-term government bonds using forecast error variance decomposition (FEVD) at two horizons, namely 12 and 24. The substantial interaction among the variables can be seen by the FEVD analysis.