Dynamic response to monetary shocks in a search model of the labor market
AbstractThis paper studies the dynamic response of a few key macroeconomic variables to each one of three exogenous shocks: monetary, government spending and technological shocks. By using a cash in advance model with two market frictions, one in the intermediation of loanable funds, and one i the labor market, we address the ability of the model to simulate data embedded with the same dynamic response to shocks observed in historical data(i.e we estimate dynamic multipliers to exogenous shocks by estimating a VARX model to both sets of data). We find evidence on the short run expasionary effects of monetary policy and we highlight the importance of studying the real interest rate dynamics as opposed to the nominal interest rate. In terms of the former we do observe a countercyclical movement of money and interest rates, while in term of the latter, we don´t. We also find a good performance of the model in tracing out the dynamic response of output after any one of the three shocks. Investment and employment dynamics are well reproduced when the economy is subject to government spending or technological shocks. We make a case for using this particular validation technique as a complementary alternative for testing the performance of calibrated dynamic general equilibrium models.
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Bibliographic InfoArticle provided by UNIVERSIDAD DEL ROSARIO in its journal REVISTA DE ECONOMÍA DEL ROSARIO.
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- Alvaro J. Riascos, 2002. "Dynamic Response To Monetary Shocks In A Search Model Of The Labor Market," BORRADORES DE ECONOMIA 002385, BANCO DE LA REPÚBLICA.
- Alvaro Riascos, . "Dyanmic Response to Monetary Shocks in a Search Model of the Labor Market," Borradores de Economia 222, Banco de la Republica de Colombia.
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
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