Dynamic effects of monetary policy shocks on macroeconomic volatility

Arbeitspapier

We develop a VAR that allows the estimation of the impact of monetary policy shocks on volatility. Estimates for the US suggest that an increase in the policy rate by 1% is associated with a rise in unemployment and inflation volatility of about 15%. Using a New Keynesian model, with search and matching labour frictions and Epstein-Zin preferences we show that these volatility effects are driven by the coexistence of agents' fears of unemployment and concerns about the (in) ability of the monetary authority to reverse deviations from the policy rule with the impact magnified by the agents' preferences.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Cardiff Economics Working Papers ; No. E2018/21

Classification and Topics

• Classification: Wirtschaft ; Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data) ; Money and Interest Rates: General ; Monetary Policy ; Bayesian Analysis: General ; Estimation: General ; Statistical Simulation Methods: General ; Econometric Modeling: General
• Subject: DSGE ; Non-Linear SVAR ; New Keynesian ; Search and Matching Frictions ; Epstein-Zin preferences ; Stochastic Volatility

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Mumtaz, Haroon ; Theodoridis, Konstantinos
• Event: Veröffentlichung
• (who): Cardiff University, Cardiff Business School
• (where): Cardiff
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/230427
• Last update: 10.03.2025, 11:41 AM CET