The Effects of Monetary Policy in a Small Open Economy: The Case of Portugal
In this paper, I analyze the macroeconomic effects of monetary policy on the Portuguese economy. I show that a positive interest rate shock leads to: (i) a contration of real GDP and a substantial increase of the unemployment rate; (ii) a quick fall in the commodity price and a gradual decrease of the price level; and (iii) a downward correction of the stock price index. It also produces a "short-lived liquidity effect" and helps explaining the negative comovement between bonds and stocks. In addition, I find evidence suggesting the existence of a money demand function characterized by small output and interest rate elasticities. By its turn, the central bank´s policy rule follows closely the dynamics of the money markets. Finally, both the real GDP and the price level in Portugal would have been higher during almost the entire sample period if there were no monetary policy surprises.
|Date of creation:||2012|
|Contact details of provider:|| Postal: Núcleo de Investigação em Políticas Económicas, Escola de Economia e Gestão, Universidade do Minho, P-4710-057 Braga, Portugal|
Phone: +351-253604510 ext 5532
Web page: http://www3.eeg.uminho.pt/economia/nipe/versao_inglesa/index_uk.htm
More information through EDIRC
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:nip:nipewp:27/2012. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Maria João Thompson)
If references are entirely missing, you can add them using this form.