Models need rethink due to effect of global shocks – paper
Central banks can no longer assume shocks are ‘temporary, linear and symmetric’, authors say
Central banks may need to rethink their models and monetary policy-making processes due to a rise in the prevalence of global shocks, new research finds.
In their working paper, authors Kristin Forbes, Jongrim Ha and M Ayhan Kose break down the shocks that hit 13 advanced economies over the past 55 years. Their analysis reveals a “much larger role” for global shocks in recent years.
From 1999–2019, global shocks explained more than a third of the variance of interest rates, the authors find. This
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