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How does monetary policy affect aggregate demand? A multimodel approach for Hungary

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  • Zoltán M. Jakab

    ()
    (Magyar Nemzeti Bank)

  • Viktor Várpalotai

    ()
    (Magyar Nemzeti Bank)

  • Balázs Vonnák

    ()
    (Magyar Nemzeti Bank)

Abstract

This paper assesses the effect of monetary policy on major components of aggregate demand. We use three different macromodels, all estimated on Hungarian data of the past 10 years. All three models indicated that after an unexpected monetary policy tightening investments decrease quickly. The response of consumption is more ambiguous, but it is most likely to increase for several years, which may be explained by the slow adjustment of nominal wages. On the other hand, we could not detect any significant change in net exports during the first couple of years after the shock. The weak response of net exports can be due to the fact that the drop in exports is coupled with a fall in imports of almost the same magnitude, highlighting the relative importance of the income-absorption effect, as opposed to the expenditure-switching effect.

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Bibliographic Info

Paper provided by Magyar Nemzeti Bank (the central bank of Hungary) in its series MNB Working Papers with number 2006/4.

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Length: 35 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:mnb:wpaper:2006/4

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Keywords: monetary transmission mechanism; macromodels; VAR; impulse responses.;

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References

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  1. Batini, Nicoletta & Nelson, Edward, 2000. "Optimal Horizons for Inflation Targeting," Working Paper Series 103, Sveriges Riksbank (Central Bank of Sweden).
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  11. Csaba Móré & Márton Nagy, 2004. "Competition in the Hungarian Banking Market," MNB Working Papers 2004/9, Magyar Nemzeti Bank (the central bank of Hungary).
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  13. Berben, Robert-Paul & Mestre, Ricardo & Mitrakos, Theodoros & Morgan, Julian & Zonzilos, Nikolaos G., 2005. "Inflation persistence in structural macroeconomic models (RG10)," Working Paper Series 0521, European Central Bank.
  14. Gábor Kátay & Zoltán Wolf, 2004. "Investment Behavior, User Cost and Monetary Policy Transmission - the Case of Hungary," MNB Working Papers 2004/12, Magyar Nemzeti Bank (the central bank of Hungary).
  15. Kim, Soyoung, 2001. "Effects of monetary policy shocks on the trade balance in small open European countries," Economics Letters, Elsevier, vol. 71(2), pages 197-203, May.
  16. Zoltán M. Jakab & Mihály András Kovács, 2003. "Explaining the Exchange Rate Pass-Through in Hungary: Simulations with the NIGEM Model," MNB Working Papers 2003/5, Magyar Nemzeti Bank (the central bank of Hungary).
  17. Bennett T. McCallum, 1999. "Analysis of the Monetary Transmission Mechanism: Methodological Issues," NBER Working Papers 7395, National Bureau of Economic Research, Inc.
  18. Darvas, Zsolt, 2001. "Exchange rate pass-through and real exchange rate in EU candidate countries," Discussion Paper Series 1: Economic Studies 2001,10, Deutsche Bundesbank, Research Centre.
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Citations

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Cited by:
  1. Zoltán M. Jakab & Balázs Világi, 2008. "An estimated DSGE model of the Hungarian economy," MNB Working Papers 2008/9, Magyar Nemzeti Bank (the central bank of Hungary).
  2. Balazs Vonnak, 2008. "The Hungarian monetary transmission mechanism: an assessment," BIS Papers chapters, in: Bank for International Settlements (ed.), Transmission mechanisms for monetary policy in emerging market economies, volume 35, pages 235-257 Bank for International Settlements.
  3. Gábor Pellényi, 2012. "The Sectoral Effects of Monetary Policy in Hungary: A Structural Factor Analysis," MNB Working Papers 2012/1, Magyar Nemzeti Bank (the central bank of Hungary).
  4. Bálint Tamási & Balázs Világi, 2011. "Identification of credit supply shocks in a Bayesian SVAR model of the Hungarian economy," MNB Working Papers 2011/7, Magyar Nemzeti Bank (the central bank of Hungary).

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