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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
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Handle: RePEc:ecm:wc2000:1040
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  1. Ben S. Bernanke & Michael Woodford, 1997. "Inflation Forecasts and Monetary Policy," NBER Working Papers 6157, National Bureau of Economic Research, Inc.
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  19. Christopher A. Sims, 1992. "Interpreting the Macroeconomic Time Series Facts: The Effects of Monetary Policy," Cowles Foundation Discussion Papers 1011, Cowles Foundation for Research in Economics, Yale University.
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  26. Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999. "Monetary policy shocks: What have we learned and to what end?," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148 Elsevier.
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  28. Julio J. Rotemberg & Michael Woodford, 1999. "Interest Rate Rules in an Estimated Sticky Price Model," NBER Chapters, in: Monetary Policy Rules, pages 57-126 National Bureau of Economic Research, Inc.
  29. Cooley, Thomas F. & Quadrini, Vincenzo, 1999. "A neoclassical model of the Phillips curve relation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 165-193, October.
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