On the (ir)relevance of direct supply-side effects of monetary policy

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On the (ir)relevance of direct supply-side effects of monetary policy

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Vasco Gabriel (University of Surrey)
Paul Levine (University of Surey)
Christopher Spencer (University of Surrey)
Bo Yang (University of Surrey)

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Abstract

The relevance of direct supply-side effects of monetary policy in a New Keynesian DSGE model is studied. We extend a model with several nominal and real frictions by introducing a cost channel of monetary transmission and allowing for non-separability of money and consumption in the utility of the representative household. These fea- tures have important theoretical consequences for the output-inflation trade-off and indeterminacy of interest rate rules. The empirical evidence for these effects are then examined using a Bayesian maximum likelihood framework complemented with GMM single-equation estimation. Both estimation strategies point to weak evidence for the cost channel and non-separable utility.

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Paper provided by Department of Economics, University of Surrey in its series Department of Economics Discussion Papers with number 0408.

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Length: 40 pages
Date of creation: Jun 2008
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Handle: RePEc:sur:surrec:0408

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Find related papers by JEL classification:
E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Bayesian Analysis

This paper has been announced in the following NEP Reports:

NEP-ALL-2008-06-13 (All new papers)
NEP-CBA-2008-06-13 (Central Banking)
NEP-DGE-2008-06-13 (Dynamic General Equilibrium)
NEP-MAC-2008-06-13 (Macroeconomics)
NEP-MON-2008-06-13 (Monetary Economics)
NEP-UPT-2008-06-13 (Utility Models & Prospect Theory)

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