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Analysis of various shocks within the high-frequency versions of the baseline New-Keynesian model

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  • Sacht, Stephen

Abstract

In this paper we analyze a hybrid small-scale New-Keynesian model with an arbitrary frequency of the agents' synchronized decision making. We study the impact of various demand and supply shocks on the dynamics of the model variables. We show that the corresponding impulse-response functions of high-frequency versions of the model can qualitatively as well as quantitatively be fairly dissimilar from their quarterly counterparts. This can be explained by the decrease in the effectiveness of monetary policy responses to these shocks and the overall increase of inertia in the model variables. In particular, different kinds of frequency-dependent persistence effects occur, which dampen the pass-through of output gap movements into inflation rate dynamics as the period length decreases. The main conclusion is that DSGE modelling may be more sensitive to its choice of the agents' decision interval.

Suggested Citation

  • Sacht, Stephen, 2014. "Analysis of various shocks within the high-frequency versions of the baseline New-Keynesian model," Economics Working Papers 2014-02, Christian-Albrechts-University of Kiel, Department of Economics.
    • Handle: RePEc:zbw:cauewp:201402
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    1. Sacht, Stephen, 2014. "Optimal monetary policy responses and welfare analysis within the highfrequency New-Keynesian framework," Economics Working Papers 2014-03, Christian-Albrechts-University of Kiel, Department of Economics.
    2. Sacht, Stephen, 2014. "Identification of prior information via moment-matching," Economics Working Papers 2014-04, Christian-Albrechts-University of Kiel, Department of Economics.

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    More about this item

    Keywords

    Hybrid New-Keynesian model; high-frequency modelling; monetary policy; frequency-dependent persistence;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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