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On the hump-shaped output effect of monetary policy in an open economy

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  • Christian Pierdzioch
  • Serkan Yener

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.
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Suggested Citation

  • Christian Pierdzioch & Serkan Yener, 2007. "On the hump-shaped output effect of monetary policy in an open economy," International Economics and Economic Policy, Springer, vol. 4(1), pages 1-13, April.
    • Handle: RePEc:kap:iecepo:v:4:y:2007:i:1:p:1-13
    DOI: 10.1007/s10368-007-0078-4
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    More about this item

    Keywords

    Monetary policy; Catching-up with the Joneses; Pricing-to-market; International financial markets; F31; F32; F41;
    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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