Research output: Working paper
Research output: Working paper
}
TY - UNPB
T1 - Dynamic Effects of Monetary Policy Shocks on Macroeconomic Volatility
AU - Theodoridis, Konstantinos
AU - Mumtaz, Haroon
PY - 2015/12
Y1 - 2015/12
N2 - 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.
AB - 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.
KW - DSGE
KW - Non-Linear SVAR
KW - New Keynesian
KW - Non-Zero Steady State Inflation
KW - Epstein-Zin preferences
KW - Stochastic Volatility
M3 - Working paper
T3 - Economics Working Paper Series
BT - Dynamic Effects of Monetary Policy Shocks on Macroeconomic Volatility
PB - Lancaster University, Department of Economics
CY - Lancaster
ER -