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This paper examines the importance of monetary disturbances for cyclical fluctuations in real activity and inflation. It employs a novel identification approach which uses the sign of the cross-correlation function in response to shocks to assign a structural interpretation to orthogonal innovations. We find that identified monetary shocks have reasonable properties; that they significantly contribute to output and inflation cycles in all G-7 countries; that they contain an important policy component, and that their impact is time varying.