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

  • Zoltán M. Jakab

    ()

    (Magyar Nemzeti Bank)

  • Viktor Várpalotai

    ()

    (Magyar Nemzeti Bank)

  • Balázs Vonnák

    ()

    (Magyar Nemzeti Bank)

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.

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File URL: http://english.mnb.hu/Root/Dokumentumtar/MNB/Kiadvanyok/mnbhu_mnbfuzetek/WP_2006_4.pdf
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Paper provided by Magyar Nemzeti Bank (the central bank of Hungary) in its series MNB Working Papers with number 2006/4.

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Length: 35 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:mnb:wpaper:2006/4
Contact details of provider: Web page: http://www.mnb.hu/

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  1. Szilárd Benk & Zoltán M. Jakab & Mihály András Kovács & Balázs Párkányi & Zoltán Reppa & Gábor Vadas, 2006. "The Hungarian Quarterly Projection Model (NEM)," MNB Occasional Papers 2006/60, Magyar Nemzeti Bank (the central bank of Hungary).
  2. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1998. "Monetary Policy Shocks: What Have We Learned and to What End?," NBER Working Papers 6400, National Bureau of Economic Research, Inc.
  3. Darvas, Zsolt, 2001. "Exchange rate pass-through and real exchange rate in EU candidate countries," Discussion Paper Series 1: Economic Studies 2001,10, Deutsche Bundesbank, Research Centre.
  4. Kadiyala, K Rao & Karlsson, Sune, 1997. "Numerical Methods for Estimation and Inference in Bayesian VAR-Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(2), pages 99-132, March-Apr.
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  7. 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.
  8. Peter van Els & Alberto Locarno & Julian Morgan & Jean-Pierre Villetelle, 2001. "Monetary policy transmission in the euro area: what do aggregate and national structural models tell us?," Temi di discussione (Economic working papers) 433, Bank of Italy, Economic Research and International Relations Area.
  9. Christopher A. Sims & Tao Zha, 1999. "Error Bands for Impulse Responses," Econometrica, Econometric Society, vol. 67(5), pages 1113-1156, September.
  10. Scholl, Almuth & Uhlig, Harald, 2008. "New evidence on the puzzles: Results from agnostic identification on monetary policy and exchange rates," Journal of International Economics, Elsevier, vol. 76(1), pages 1-13, September.
  11. Zoltán M. Jakab & Mihály András Kovács, 2003. "Explaining the Exchange Rate Pass-Through in Hungary: Simulations with the NIGEM Model," MNB Working Papers 2003/5, Magyar Nemzeti Bank (the central bank of Hungary).
  12. Shiller, Robert J, 1973. "A Distributed Lag Estimator Derived from Smoothness Priors," Econometrica, Econometric Society, vol. 41(4), pages 775-88, July.
  13. Mojon, Benoît & Angeloni, Ignazio & Terlizzese, Daniele & Kashyap, Anil K., 2003. "The output composition puzzle: a difference in the monetary transmission mechanism in the euro area and U.S," Working Paper Series 0268, European Central Bank.
  14. Nicoletta Batini & Edward Nelson, 2000. "Optimal horizons for inflation targeting," Bank of England working papers 119, Bank of England.
  15. Jakab Zoltan & kovacs Mihaly Andras, . "Explaining the Exchange Rate Pass-Through: Some Simulations with the NIGEM Model," EcoMod2002 330800038, EcoMod.
  16. Gábor Kátay & Zoltán Wolf, 2004. "Investment Behavior, User Cost and Monetary Policy Transmission - the Case of Hungary," MNB Working Papers 2004/12, Magyar Nemzeti Bank (the central bank of Hungary).
  17. Kim, Soyoung, 2001. "Effects of monetary policy shocks on the trade balance in small open European countries," Economics Letters, Elsevier, vol. 71(2), pages 197-203, May.
  18. Bennett T. McCallum, 1999. "Analysis of the Monetary Transmission Mechanism: Methodological Issues," NBER Working Papers 7395, National Bureau of Economic Research, Inc.
  19. Csaba Móré & Márton Nagy, 2004. "Competition in the Hungarian Banking Market," MNB Working Papers 2004/9, Magyar Nemzeti Bank (the central bank of Hungary).
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