Monetary Policy, Rule-of-Thumb Consumers and External Habits: An International Comparison
AbstractThis paper extends the standard New Keynesian dynamic stochastic general equilibrium (DSGE) model to agents who cannot smooth consumption (i.e. spenders) and are affected by external consumption habits. Although these assumptions are not new, their joint consideration strongly affects some theoretical and empirical results addressed by the recent literature. By deriving closed-form solutions, we identify different demand regimes and show that they are characterized by specific features regarding dynamic stability and monetary policy effectiveness. We also evaluate our model by stochastic simulations obtained from the Bayesian parameters estimates for the G7 economies. From posterior impulse response we address the empirical relevance of the different regimes and provide comparative evidence on the asymmetric effects of monetary policy, resulting from the heterogeneity of the estimated model structures.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Crete, Department of Economics in its series Working Papers with number 0727.
Length: 31 pages
Date of creation: 23 Oct 2007
Date of revision:
Rule-of-thumb; habits; monetary policy transmission; determinacy; New Keynesian;
Find related papers by JEL classification:
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-10-27 (All new papers)
- NEP-CBA-2007-10-27 (Central Banking)
- NEP-MAC-2007-10-27 (Macroeconomics)
- NEP-MON-2007-10-27 (Monetary Economics)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Jorge A. Fornero, 2010. "Ricardian Equivalence Proposition in a NK DSGE Model for two Large Economies: The EU and the US," Working Papers Central Bank of Chile 563, Central Bank of Chile.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kostis Pigounakis).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.