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Financial frictions and the volatility of monetary policy in a DSGE model

Research output: Working paper

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Financial frictions and the volatility of monetary policy in a DSGE model. / Nguyen, Anh.
Lancaster: Lancaster University, Department of Economics, 2015. (Economics Working Paper Series; Vol. 2015, No. 6).

Research output: Working paper

Harvard

Nguyen, A 2015 'Financial frictions and the volatility of monetary policy in a DSGE model' Economics Working Paper Series, no. 6, vol. 2015, Lancaster University, Department of Economics, Lancaster.

APA

Nguyen, A. (2015). Financial frictions and the volatility of monetary policy in a DSGE model. (Economics Working Paper Series; Vol. 2015, No. 6). Lancaster University, Department of Economics.

Vancouver

Nguyen A. Financial frictions and the volatility of monetary policy in a DSGE model. Lancaster: Lancaster University, Department of Economics. 2015. (Economics Working Paper Series; 6).

Author

Nguyen, Anh. / Financial frictions and the volatility of monetary policy in a DSGE model. Lancaster : Lancaster University, Department of Economics, 2015. (Economics Working Paper Series; 6).

Bibtex

@techreport{856923b763904540aec14b8461f97f1e,
title = "Financial frictions and the volatility of monetary policy in a DSGE model",
abstract = "The paper investigates the impacts of the volatility of monetary policy on the economy in a DSGE model with financial frictions a la Bernanke, Gertler, and Gilchrist (1999). The model is estimated by the particle filter maximum likelihood estimator for the U.S. economy. Our results first show that a positive monetary volatility shock causes a contraction in economic activity: output, consumption, investment, hours, and real wages fall. Second, we argue that financial frictions amplify the effects of the shock via the financial accelerator mechanism. Third, we document that the size of the effects of the shock is relatively small mostly because of the counteracting response of monetary policy to the shock. Therefore, the impacts would be substantial if monetary policy was restrained to respond to changes in current conditions in the economy.",
keywords = "DSGE models, financial accelerator, Taylor rule, monetary policy, stochastic volatility, particle filter, higher-order approximations, policy uncertainty",
author = "Anh Nguyen",
year = "2015",
language = "English",
series = "Economics Working Paper Series",
publisher = "Lancaster University, Department of Economics",
number = "6",
type = "WorkingPaper",
institution = "Lancaster University, Department of Economics",

}

RIS

TY - UNPB

T1 - Financial frictions and the volatility of monetary policy in a DSGE model

AU - Nguyen, Anh

PY - 2015

Y1 - 2015

N2 - The paper investigates the impacts of the volatility of monetary policy on the economy in a DSGE model with financial frictions a la Bernanke, Gertler, and Gilchrist (1999). The model is estimated by the particle filter maximum likelihood estimator for the U.S. economy. Our results first show that a positive monetary volatility shock causes a contraction in economic activity: output, consumption, investment, hours, and real wages fall. Second, we argue that financial frictions amplify the effects of the shock via the financial accelerator mechanism. Third, we document that the size of the effects of the shock is relatively small mostly because of the counteracting response of monetary policy to the shock. Therefore, the impacts would be substantial if monetary policy was restrained to respond to changes in current conditions in the economy.

AB - The paper investigates the impacts of the volatility of monetary policy on the economy in a DSGE model with financial frictions a la Bernanke, Gertler, and Gilchrist (1999). The model is estimated by the particle filter maximum likelihood estimator for the U.S. economy. Our results first show that a positive monetary volatility shock causes a contraction in economic activity: output, consumption, investment, hours, and real wages fall. Second, we argue that financial frictions amplify the effects of the shock via the financial accelerator mechanism. Third, we document that the size of the effects of the shock is relatively small mostly because of the counteracting response of monetary policy to the shock. Therefore, the impacts would be substantial if monetary policy was restrained to respond to changes in current conditions in the economy.

KW - DSGE models

KW - financial accelerator

KW - Taylor rule

KW - monetary policy

KW - stochastic volatility

KW - particle filter

KW - higher-order approximations

KW - policy uncertainty

M3 - Working paper

T3 - Economics Working Paper Series

BT - Financial frictions and the volatility of monetary policy in a DSGE model

PB - Lancaster University, Department of Economics

CY - Lancaster

ER -