Economics at your fingertips  

Endogenous monetary policy and the liquidity effect

Javier Andrés (), David Lopez-Salido () and Javier Valles

Spanish Economic Review, 2004, vol. 6, issue 3, 159-178

Abstract: We compare the transmission mechanism of exogenous and endogenous monetary policies in a calibrated small open economy model with nominal and real rigidities. Under an exogenous monetary policy rule it takes implausible values of the intertemporal elasticity of substitution and the price adjustment costs to generate the liquidity and overshooting effects. Endogenous rules with strong feedback to inflation and output help to reproduce the response of the nominal interest and exchange rates to unanticipated monetary policy shocks that characterize the transmission mechanism of standard sticky price models. The liquidty and overshooting effects are always obtained when the model is augmented with a Taylor interest rate rule. Copyright Springer-Verlag Berlin/Heidelberg 2004

Keywords: Liquidity and overshooting effects; price and capital adjustment costs; Taylor rule (search for similar items in EconPapers)
Date: 2004
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link) (text/html)
Access to full text is restricted to subscribers.

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:

Ordering information: This journal article can be ordered from
http://www.springer. ... etailsPage=societies

DOI: 10.1007/s10108-004-0082-6

Access Statistics for this article

Spanish Economic Review is currently edited by Eduardo Ley

More articles in Spanish Economic Review from Springer, Spanish Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla ().

Page updated 2020-07-19
Handle: RePEc:spr:specre:v:6:y:2004:i:3:p:159-178