Habit Formation and the Persistence of Monetary Shocks

Hafedh Bouakez (), Emanuela Cardia () and Francisco J. Ruge-Murcia ()

Cahiers de recherche from Centre interuniversitaire de recherche en économie quantitative, CIREQ

Abstract: This paper studies the persistent effects of monetary shocks on output. Previous empirical literature documents this persistence, but standard general equilibrium models with sticky prices fail to generate output responses beyond the duration of nominal contracts. This paper constructs and estimates a general equilibrium model with price rigidities, habit formation, and costly capital adjustment. The model is estimated via Maximum Likelihood using US data on output, the real money stock, and the nominal interest rate. Econometric results suggest that habit formation and adjustment costs to capital play an important role in explaining the output effects of monetary policy. In particular, impulse response analysis indicates that the model generates persistent, hump-shaped output responses to monetary shocks.

Keywords: Habit formation; endogenous persistence; monetary policy (search for similar items in EconPapers)
Date: Written 2002
View list of references View citations in EconPapers

Downloads: (external link)
http://www.crde.umontreal.ca/cahiers/08-2002-cah.pdf (application/pdf)

Related works:
Working Paper: Habit Formation and the Persistence of Monetary Shocks (2002)
Working Paper: Habit Formation and the Persistence of Monetary Shocks (2002)
Working Paper: Habit Formation and the Persistence of Monetary Shocks (2003)
Journal Article: Habit formation and the persistence of monetary shocks (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Access Statistics for this paper

More papers in Cahiers de recherche from Centre interuniversitaire de recherche en économie quantitative, CIREQ
Contact information at EDIRC.
Series data maintained by Sharon BREWER ().