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How does monetary policy affect aggregate demand? A multimodel approach for Hungary

Author

Listed:
  • Zoltán M. Jakab

    () (Magyar Nemzeti Bank)

  • Viktor Várpalotai

    () (Magyar Nemzeti Bank)

  • Balázs Vonnák

    () (Magyar Nemzeti Bank)

Abstract

This paper assesses the effect of monetary policy on major components of aggregate demand. We use three different macromodels, all estimated on Hungarian data of the past 10 years. All three models indicated that after an unexpected monetary policy tightening investments decrease quickly. The response of consumption is more ambiguous, but it is most likely to increase for several years, which may be explained by the slow adjustment of nominal wages. On the other hand, we could not detect any significant change in net exports during the first couple of years after the shock. The weak response of net exports can be due to the fact that the drop in exports is coupled with a fall in imports of almost the same magnitude, highlighting the relative importance of the income-absorption effect, as opposed to the expenditure-switching effect.

Suggested Citation

  • Zoltán M. Jakab & Viktor Várpalotai & Balázs Vonnák, 2006. "How does monetary policy affect aggregate demand? A multimodel approach for Hungary," MNB Working Papers 2006/4, Magyar Nemzeti Bank (Central Bank of Hungary).
  • Handle: RePEc:mnb:wpaper:2006/4
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    File URL: http://www.mnb.hu/letoltes/wp-2006-4.pdf
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    References listed on IDEAS

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    1. Martin Eichenbaum & Charles L. Evans, 1995. "Some Empirical Evidence on the Effects of Shocks to Monetary Policy on Exchange Rates," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 975-1009.
    2. Uhlig, Harald, 2005. "What are the effects of monetary policy on output? Results from an agnostic identification procedure," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 381-419, March.
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    4. Csaba Móré & Márton Nagy, 2004. "Competition in the Hungarian Banking Market," MNB Working Papers 2004/9, Magyar Nemzeti Bank (Central Bank of Hungary).
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    Citations

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    Cited by:

    1. Gábor Pellényi, 2012. "The Sectoral Effects of Monetary Policy in Hungary: A Structural Factor Analysis," MNB Working Papers 2012/1, Magyar Nemzeti Bank (Central Bank of Hungary).
    2. Balazs Vonnak, 2008. "The Hungarian monetary transmission mechanism: an assessment," BIS Papers chapters,in: Bank for International Settlements (ed.), Transmission mechanisms for monetary policy in emerging market economies, volume 35, pages 235-257 Bank for International Settlements.
    3. Kovács, Mihály András, 2007. "Mit csinál a monetáris politika az inflációs célkövetés rendszerében?. Észrevételek Erdős Tibor Árfolyam-politika és inflációs célkövetés Magyarországon című írásához
      [What does monetary policy do
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(12), pages 1103-1120.
    4. Bálint Tamási & Balázs Világi, 2011. "Identification of credit supply shocks in a Bayesian SVAR model of the Hungarian economy," MNB Working Papers 2011/7, Magyar Nemzeti Bank (Central Bank of Hungary).
    5. Khundrakpam, Jeevan Kumar, 2012. "Estimating Impacts of Monetary Policy on Aggregate Demand in India," MPRA Paper 50902, University Library of Munich, Germany.
    6. Zoltán M. Jakab & Balázs Világi, 2008. "An estimated DSGE model of the Hungarian economy," MNB Working Papers 2008/9, Magyar Nemzeti Bank (Central Bank of Hungary).

    More about this item

    Keywords

    monetary transmission mechanism; macromodels; VAR; impulse responses.;

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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