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The Timing of Monetary Policy Shocks

  • Giovanni Olivei
  • Silvana Tenreyro

A vast empirical literature has documented delayed and persistent effects of monetary policy shocks on output. We show that this finding results from the aggregation of output impulse responses that differ sharply depending on the timing of the shock: when the monetary policy shock takes place in the first two quarters of the year, the response of output is quick, sizable, and dies out at a relatively fast pace. In contrast, output responds very little when the shock takes place in the third or fourth quarter. We propose a potential explanation for the differential responses based on uneven staggering of wage contracts across quarters. Using a stylized dynamic general equilibrium model, we show that a very modest amount of uneven staggering can generate differences in output responses similar to those found in the data.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0725.

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Date of creation: May 2006
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Handle: RePEc:cep:cepdps:dp0725
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