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Monetary Business Cycle Accounting

  • Sustek, Roman

This paper investigates the quantitative importance of various types of frictions for inflation and nominal interest rate dynamics by extending business cycle accounting to monetary models. Representing a variety of real and nominal frictions as `wedges' to standard equilibrium conditions allows a quantitative assessment of those frictions. Decomposing the data into movements due to these wedges shows that frictions that are equivalent to wedges in TFP and equilibrium conditions for asset markets are essential. In contrast, wedges in equilibrium conditions for capital accumulation and the resource constraint, and wedges capturing distortionary effects of sticky prices, play only a secondary role.

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File URL: https://mpra.ub.uni-muenchen.de/17518/1/MPRA_paper_17518.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17518.

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Date of creation: 25 Sep 2009
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Handle: RePEc:pra:mprapa:17518
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  7. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October.
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  9. Jeffrey C. Fuhrer, 2009. "Inflation persistence," Working Papers 09-14, Federal Reserve Bank of Boston.
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  18. Simonovska, Ina & Söderling, Ludvig, 2015. "Business Cycle Accounting For Chile," Macroeconomic Dynamics, Cambridge University Press, vol. 19(05), pages 990-1022, July.
  19. Goffe, William L. & Ferrier, Gary D. & Rogers, John, 1994. "Global optimization of statistical functions with simulated annealing," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 65-99.
  20. Dooyeon Cho & Antonio Doblas-Madrid, 2013. "Business Cycle Accounting East and West: Asian Finance and the Investment Wedge," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(4), pages 724-744, October.
  21. Lawrence J. Christiano & Martin Eichenbaum, 1992. "Liquidity effects and the monetary transmission mechanism," Staff Report 150, Federal Reserve Bank of Minneapolis.
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  23. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  24. Canzoneri, Matthew B. & Cumby, Robert E. & Diba, Behzad T., 2007. "Euler equations and money market interest rates: A challenge for monetary policy models," Journal of Monetary Economics, Elsevier, vol. 54(7), pages 1863-1881, October.
  25. Feenstra, Robert C., 1986. "Functional equivalence between liquidity costs and the utility of money," Journal of Monetary Economics, Elsevier, vol. 17(2), pages 271-291, March.
  26. Gregor W. Smith & Stanley E. Zin, 1997. "Real Business Cycle Realizations," Working Papers 1253, Queen's University, Department of Economics.
  27. Lucas, Robert Jr., 1990. "Liquidity and interest rates," Journal of Economic Theory, Elsevier, vol. 50(2), pages 237-264, April.
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