Dynamic effects of monetary policy shocks on macroeconomic volatility

Haroon Mumtaz and Konstantinos Theodoridis

Journal of Monetary Economics, 2020, vol. 114, issue C, 262-282

Abstract: 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.

Keywords: DSGE; Non-Linear SVAR; New keynesian; Search and matching frictions; 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: 2020
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Citations: View citations in EconPapers (26)

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Related works:
Working Paper: Dynamic Effects of Monetary Policy Shocks on Macroeconomic Volatility (2018)
Working Paper: Dynamic Effects of Monetary Policy Shocks on Macroeconomic Volatility (2015)
Working Paper: Dynamic Effects of Monetary Policy Shocks on Macroeconomic Volatility (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:114:y:2020:i:c:p:262-282

DOI: 10.1016/j.jmoneco.2019.03.011

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