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The Timing of Monetary Policy Shocks

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Author Info
Giovanni Olivei
Silvana Tenreyro

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Abstract

A vast empirical literature has documented delayed and persistent effects of monetary policy shocks on output. We show that this finding results from the aggregation of output impulse responses that differ sharply depending on the timing of the shock. When the monetary policy shock takes place in the first two quarters of the year, the response of output is quick, sizable, and dies out at a relatively fast pace. In contrast, output responds very little when the shock takes place in the third or fourth quarter. We propose a potential explanation for the differential responses based on uneven staggering of wage contracts across quarters. Using a dynamic general equilibrium model, we show that a realistic amount of uneven staggering can generate differences in output responses quantitatively similar to those found in the data. (JEL E23, E24, E58, J41)

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 97 (2007)
Issue (Month): 3 (June)
Pages: 636-663
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Handle: RePEc:aea:aecrev:v:97:y:2007:i:3:p:636-663

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  4. Ben S. Bernanke & Ilian Mihov, 1998. "Measuring Monetary Policy," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 869-902, August. [Downloadable!] (restricted)
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  5. Jeffrey C. Fuhrer, 1994. "Optimal monetary policy and the sacrifice ratio," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, pages 43-84. [Downloadable!]
  6. Uhlig, Harald, 1999. "What are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure," CEPR Discussion Papers 2137, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. Ball, Laurence & Cecchetti, Stephen G, 1988. "Imperfect Information and Staggered Price Setting," American Economic Review, American Economic Association, vol. 78(5), pages 999-1018, December. [Downloadable!] (restricted)
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  8. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February. [Downloadable!] (restricted)
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  11. Jeffrey C. Fuhrer & C. Hoyt Bleakley, . "Computationally Efficient Solution and Maximum Likelihood Estimation of Nonlinear Rational Expectations Models," Computing in Economics and Finance 1997 35, Society for Computational Economics. [Downloadable!]
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  12. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1998. "Monetary Policy Shocks: What Have We Learned and to What End?," NBER Working Papers 6400, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Jean Boivin & Marc P Giannoni, 2006. "Has Monetary Policy Become More Effective?," The Review of Economics and Statistics, MIT Press, vol. 88(3), pages 445-462, October. [Downloadable!] (restricted)
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  14. Francine D. Blau & Lawrence M. Kahn, 2000. "Gender Differences in Pay," Journal of Economic Perspectives, American Economic Association, vol. 14(4), pages 75-99, Fall. [Downloadable!] (restricted)
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  15. Michael Dotsey & Robert G. King & Alexander L. Wolman, 1999. "State-Dependent Pricing And The General Equilibrium Dynamics Of Money And Output," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 655-690, May. [Downloadable!] (restricted)
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  19. Joyce P. Jacobsen, 2004. "Women as labor force participants: effects of family and organizational structure," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, issue Mar. [Downloadable!]
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  21. Lawrence J. Christiano & Martin Eichenbaum, 1991. "Identification and the Liquidity Effect of a Monetary Policy Shock," NBER Working Papers 3920, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  22. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September. [Downloadable!] (restricted)
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  24. Julio Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361 National Bureau of Economic Research, Inc. [Downloadable!]
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  1. Markus Knell & Alfred Stiglbauer, 2009. "The impact of reference norms on inflation persistence when wages are staggered," Working Paper Series 1047, European Central Bank. [Downloadable!]
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  2. Ekaterina V. Peneva, 2009. "Factor intensity and price rigidity: evidence and theory," Finance and Economics Discussion Series 2009-07, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  3. Jan Babecky & Kamil Dybczak & Kamil Galuscak, 2008. "Survey on Wage and Price Formation of Czech Firms," Working Papers 2008/12, Czech National Bank, Research Department. [Downloadable!]
  4. Hellwig, Christian & Veldkamp, Laura, 2007. "Knowing What Others Know: Coordination Motives in Information Acquisition," CEPR Discussion Papers 6506, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. Giovanni Olivei & Silvana Tenreyro, 2008. "Wage Setting Patterns and Monetary Policy: International Evidence," CEP Discussion Papers dp0872, Centre for Economic Performance, LSE. [Downloadable!]
  6. Jan Libich, 2006. "An Explicit Inflation Target As A Commitment Device," CAMA Working Papers 2006-22, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
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