Dynamic Effects of Monetary Policy Shocks on Macroeconomic Volatility

Konstantinos Theodoridis and Haroon Mumtaz

No 101219932, Working Papers from Lancaster University Management School, Economics Department

Abstract: We use a simple New Keynesian model, with firm specific capital, non-zero steady-state inflation, long-run risks and Epstein-Zin preferences to study the volatility implications of a monetary policy shock. An unexpected increase in the policy rate by 150 basis points causes output and inflation volatility to rise around 10% above their steady-state standard deviations. VAR based empirical results support the model implications that contractionary shocks increase volatility. The volatility effects of the shock are driven by agents' concern about the (in) ability of the monetary authority to reverse deviations from the policy rule and the results are re-enforced by the presence of non-zero trend inflation.

Keywords: DSGE; Non-Linear SVAR; New Keynesian; Non-Zero Steady State Inflation; Epstein-Zin preferences; Stochastic Volatility (search for similar items in EconPapers)
JEL-codes: C11 C13 C15 C50 E30 E40 E52 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.lancaster.ac.uk/media/lancaster-univers ... casterWP2015_031.pdf (application/pdf)

Related works:
Journal Article: Dynamic effects of monetary policy shocks on macroeconomic volatility (2020)
Working Paper: Dynamic Effects of Monetary Policy Shocks on Macroeconomic Volatility (2018)
Working Paper: Dynamic Effects of Monetary Policy Shocks on Macroeconomic Volatility (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lan:wpaper:101219932

Access Statistics for this paper

More papers in Working Papers from Lancaster University Management School, Economics Department Contact information at EDIRC.
Bibliographic data for series maintained by Giorgio Motta ().