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

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Author Info

  • Vasco Gabriel

    (University of Surrey)

  • Paul Levine

    (University of Surey)

  • Christopher Spencer

    (University of Surrey)

  • Bo Yang

    (University of Surrey)

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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Bibliographic Info

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

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

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Related research

Keywords: New Keynesian model; Bayesian maximum likelihood estimation; GMM; non-separable utility; cost channel.;

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Cited by:
  1. Steffen Henzel & Oliver Hülsewig & Eric Mayer & Timo Wollmershäuser, 2007. "The Price Puzzle Revisited: Can the Cost Channel Explain a Rise in Inflation after a Monetary Policy Shock?," CESifo Working Paper Series 2039, CESifo Group Munich.

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