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Dyanmic Response to Monetary Shocks in a Search Model of the Labor Market

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  • Alvaro Riascos

Abstract

This paper studies the dynamic response of a few key macroeconomic variables to each one of three exogenous shocks: monetary, government spending and technological shocks. By using a cash in advance model with two market frictions, one in the intermediation of loanable funds, and one in the labor market, we address the ability of the model to simulate data embedded with the same dynamic response to shocks observed in historical data (i.e we estimate dynamic multipliers to exogenous shocks by estimating a VARX model to both sets of data). We find evidence on the short run expansionary effects of monetary policy and we highlight the importance of studyng the real interest rate dynamics as opposed to the nominal interest rate. In terms of the former we do observe a coutercyclical movement of money and interest rates, while in term of the latter, we don't. We also find a good perfomance of the model in tracing out the dynamic response of output after any one of the three shocks. Investment and employment dynamics are well reproduced when the economy is subject to government spending or technological shocks. We make a case for using this particular validation technique as a complementary alternative for testing the perfomance of calibrated dynamic general equilibrium models

Suggested Citation

  • Alvaro Riascos, 2002. "Dyanmic Response to Monetary Shocks in a Search Model of the Labor Market," Borradores de Economia 222, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:222
    DOI: 10.32468/be.222
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    Cited by:

    1. Luis F. Melo & Álvaro Riascos, 2004. "Sobre los efectos de la política monetaria en Colombia," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 22(45), pages 172-221, June.
    2. Andrés González & Sergio Ocampo & Diego Rodríguez & Norberto Rodríguez, 2012. "Asimetrías del empleo y el producto, una aproximación de equilibrio general," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 30(68), pages 218-272, June.
    3. Alvaro Riascos, 2002. "Monetary Policy Rules in a Search Model of the Labor Market," Borradores de Economia 221, Banco de la Republica de Colombia.

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    More about this item

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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