Economics at your fingertips  

The long-run real effects of monetary shocks: Lessons from a hybrid post-Keynesian-DSGE-agent-based menu cost model

Miklós Váry

Economic Modelling, 2021, vol. 105, issue C

Abstract: This paper studies the long-run effects of monetary policy on real economic activity. It presents a hybrid menu cost model, the structure of which mimics that of dynamic stochastic general equilibrium models with fixed price adjustment costs (menu costs). It contains two mechanisms capable of generating long-run real effects in response to monetary shocks according to post-Keynesian macroeconomists, and its behavior is studied via agent-based simulations. After being calibrated to reproduce key features of the microdata, the model estimates that a typical monetary shock has substantial long-run real effects, with around one-quarter of the shock being absorbed by real output. However, the long-run effectiveness of a monetary shock turns out to decrease with its size. The key mechanisms generating long-run real effects are shown to be demand–supply interactions, that is, positive feedbacks from aggregate demand to aggregate supply. The results suggest that central banks should stronger emphasize stabilizing real economic activity when designing their monetary policies.

Keywords: Long-run monetary non-neutrality; Monetary shocks; Menu costs; Demand–supply interactions; Post-Keynesian monetary macroeconomics; Agent-based modeling (search for similar items in EconPapers)
JEL-codes: E12 E31 E32 E37 E52 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
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:

DOI: 10.1016/j.econmod.2021.105674

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

Page updated 2024-02-12
Handle: RePEc:eee:ecmode:v:105:y:2021:i:c:s0264999321002637