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Open Market Operations as a Monetary Policy Shock Measure in a Quantitative Business Cycle Model

  • Burkhard Heer

    (University of Cologne)

  • Andreas Schabert

    (University of Cologne)

This paper develops a dynamic general equilibrium model in order to study the impact of two different monetary policy shocks. Monetary policy is either conducted by open market operations or specified as exogenous money growth. In our model, prices are sticky and real balances yield utility. In addition, we introduce a financial sector which intermediates loans. We present monetary features of the business cycle in the US economy and compare them to the properties of our model economies. Our model with a shock to open market operations is shown to be a promising alternative to the model with an exogenous money growth shock as the endogeneity of money helps i) to reconcile the model's implications for the behavior of monetary aggregates and interest rates with empirical observations and ii) to generate persistent responses, especially for interest rates and output.

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Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1040.

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Date of creation: 01 Aug 2000
Handle: RePEc:ecm:wc2000:1040
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