Measuring Monetary Policy by Ben S. Bernanke and Ilian Mihov This paper presents a VAR-based methodology for measuring the stance of monetary policy. The authors develop a "semi-structural" VAR approach that extracts information about monetary policy from data on bank reserves and the federal funds rate, while leaving the relationships among macroeconomic variables unrestricted. The methodology nests earlier VAR-based measures and can be used to compare and evaluate these indicators. It can also be used to construct measures of the stance of policy that optimally incorporate estimates of the Fed's operating procedure for any given period. The authors find that innovations to the federal funds rate (Bernanke-Blinder) are a good measure of policy innovations during the periods 1965-79 and 1988-94; for the period 1979-94 as a whole, innovations to the component of nonborrowed reserves that is orthogonal to total reserves (Strongin) seems to be the best choice. They develop a new measure of policy stance that conforms well to qualitative indicators of policy such as the Boschen-Mills (1991) index. Innovations to our measure lead to reasonable and precisely estimated dynamic responses by variables such as real GDP and the GDP deflator. The paper discusses a general econometric methodology for measuring the stance of monetary policy, and uses this methodology both to formally evaluate existing measures and to develop new ones. The authors build on the "structural VAR" approach, utilized in this context by Bernanke and Blinder (1992), Strongin (1992), and Christiano, Eichenbaum, and Evans (1994a, 1994b), among others. More specifically, they develop a "semi-structural" VAR model which leaves the relationships among macroeconomic variables in the system unrestricted, but imposes contemporaneous identification restrictions on a set of variables relevant to the market for commercial bank reserves. The authors find that the Bernanke-Blinder measure is a good measure of policy innovations during the periods 1965-79 and 1988-94; for the period 1979-94 as a whole, the Strongin measure seems to be the best choice. They develop a new measure of policy stance that conforms well to qualitative indicators of policy such as the Boschen-Mills (1991) index. Innovations to our measure lead to reasonable and precisely estimated dynamic responses by variables such as real GDP and the GDP deflator.Measuring Monetary Policy by Ben S. Bernanke and Ilian Mihov This paper presents a VAR-based methodology for measuring the stance of monetary policy. The authors develop a "semi-structural" VAR approach that extracts information about monetary policy from data on bank reserves and the federal funds rate, while leaving the relationships among macroeconomic variables unrestricted. The methodology nests earlier VAR-based measures and can be used to compare and evaluate these indicators. It can also be used to construct measures of the stance of policy that optimally incorporate estimates of the Fed's operating procedure for any given period. The authors find that innovations to the federal funds rate (Bernanke-Blinder) are a good measure of policy innovations during the periods 1965-79 and 1988-94; for the period 1979-94 as a whole, innovations to the component of nonborrowed reserves that is orthogonal to total reserves (Strongin) seems to be the best choice. They develop a new measure of policy stance that conforms well to qualitative indicators of policy such as the Boschen-Mills (1991) index. Innovations to our measure lead to reasonable and precisely estimated dynamic responses by variables such as real GDP and the GDP deflator. The paper discusses a general econometric methodology for measuring the stance of monetary policy, and uses this methodology both to formally evaluate existing measures and to develop new ones. The authors build on the "structural VAR" approach, utilized in this context by Bernanke and Blinder (1992), Strongin (1992), and Christiano, Eichenbaum, and Evans (1994a, 1994b), among others. More specifically, they develop a "semi-structural" VAR model which leaves the relationships among macroeconomic variables in the system unrestricted, but imposes contemporaneous identification restrictions on a set of variables relevant to the market for commercial bank reserves. The authors find that the Bernanke-Blinder measure is a good measure of policy innovations during the periods 1965-79 and 1988-94; for the period 1979-94 as a whole, the Strongin measure seems to be the best choice. They develop a new measure of policy stance that conforms well to qualitative indicators of policy such as the Boschen-Mills (1991) index. Innovations to our measure lead to reasonable and precisely estimated dynamic responses by variables such as real GDP and the GDP deflator.