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On the Hump-Shaped Output Effect of Monetary Policy in an Open Economy

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  • Pierdzioch, Christian
  • Yener, Serkan

Abstract

Results of empirical research have revealed a characteristic hump-shaped effect of monetary policy shocks on output: the effect builds to a peak after several months and then gradually dies out. We analyze, in the context of a "new open economy macroeconomics" model, factors that imply a hump- shaped effect of a monetary policy shock on output. We find that a hump- shaped effect of output is likely to result if the model features a "catching up with the Joneses" effect, pricing-to-market behavior of firms, and imperfect international financial market integration.

Suggested Citation

  • Pierdzioch, Christian & Yener, Serkan, 2004. "On the Hump-Shaped Output Effect of Monetary Policy in an Open Economy," Kiel Working Papers 1214, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:1214
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    More about this item

    Keywords

    Monetary policy; Catching up with the Joneses; Pricing-to-market; International financial markets;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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