Dynamic Effects of Monetary Policy Shocks on Macroeconomic Volatility

Theodoridis, Konstantinos and Mumtaz, Haroon (2015) Dynamic Effects of Monetary Policy Shocks on Macroeconomic Volatility. Working Paper. Lancaster University, Department of Economics, Lancaster.

[img]
Preview
PDF (LancasterWP2015_031)
LancasterWP2015_031.pdf

Download (1MB)

Abstract

We use a simple New Keynesian model, with firm specific capital, non-zero steady-state inflation, long-run risks and Epstein-Zin preferences to study the volatility implications of a monetary policy shock. An unexpected increase in the policy rate by 150 basis points causes output and inflation volatility to rise around 10% above their steady-state standard deviations. VAR based empirical results support the model implications that contractionary shocks increase volatility. The volatility effects of the shock are driven by agents' concern about the (in) ability of the monetary authority to reverse deviations from the policy rule and the results are re-enforced by the presence of non-zero trend inflation.

Item Type:
Monograph (Working Paper)
Subjects:
ID Code:
77323
Deposited By:
Deposited On:
22 Dec 2015 10:12
Refereed?:
No
Published?:
Published
Last Modified:
08 Aug 2020 23:57