Drifts, Volatilities, and Impulse Responses Over the Last Century

How much have the dynamics of U.S. time series and in particular the transmission of innovations to monetary policy instruments changed over the last century? The answers to these questions that this paper gives are "a lot" and "probably less than you think," respectively. We use vector autoregressions with time-varying parameters and stochastic volatility to tackle these questions. In our analysis we use variables that both influenced monetary policy and in turn were influenced by monetary policy itself, including bond market data (the difference between long-term and short-term nominal interest rates) and the growth rate of money.