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On the (ir)relevance of direct supply-side effects of monetary policy

  • Vasco Gabriel

    (University of Surrey)

  • Paul Levine

    (University of Surey)

  • Christopher Spencer

    (University of Surrey)

  • Bo Yang

    (University of Surrey)

The relevance of direct supply-side effects of monetary policy in a New Keynesian DSGE model is studied. We extend a model with several nominal and real frictions by introducing a cost channel of monetary transmission and allowing for non-separability of money and consumption in the utility of the representative household. These fea- tures have important theoretical consequences for the output-inflation trade-off and indeterminacy of interest rate rules. The empirical evidence for these effects are then examined using a Bayesian maximum likelihood framework complemented with GMM single-equation estimation. Both estimation strategies point to weak evidence for the cost channel and non-separable utility.

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File URL: http://www.fahs.surrey.ac.uk/economics/discussion_papers/2008/DP04-08.pdf
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Paper provided by School of Economics, University of Surrey in its series School of Economics Discussion Papers with number 0408.

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Length: 40 pages
Date of creation: Jun 2008
Date of revision:
Handle: RePEc:sur:surrec:0408
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  16. Adolfson, Malin & Laseen, Stefan & Linde, Jesper & Villani, Mattias, 2007. "Bayesian estimation of an open economy DSGE model with incomplete pass-through," Journal of International Economics, Elsevier, vol. 72(2), pages 481-511, July.
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  18. Rabanal, Pau, 2007. "Does inflation increase after a monetary policy tightening? Answers based on an estimated DSGE model," Journal of Economic Dynamics and Control, Elsevier, vol. 31(3), pages 906-937, March.
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