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On the Hump-Shaped Output Effect of Monetary Policy in an Open Economy

  • Christian Pierdzioch
  • Serkan Yener

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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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1214.

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Length: 20 pages
Date of creation: May 2004
Date of revision:
Handle: RePEc:kie:kieliw:1214
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