Habit Formation and the Persistence of Monetary Shocks

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

Staff Working Papers from Bank of Canada

Keywords: Business fluctuations and cycles; Transmission of monetary policy (search for similar items in EconPapers)
JEL-codes: E3 E4 E5 (search for similar items in EconPapers)
Pages: 45 pages 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. The paper constructs and estimates a general-equilibrium model with price rigidities, habit formation, and costly capital adjustment. The model is estimated by the maximum-likelihood method using U.S. data on output, the real money stock, and the nominal interest rate. Econometric results indicate 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.
Date: 2002
New Economics Papers: this item is included in nep-dge, nep-mon and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Habit formation and the persistence of monetary shocks (2005)
Working Paper: Habit Formation and the Persistence of Monetary Shocks (2003)
Working Paper: Habit Formation and the Persistence of Monetary Shocks (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:02-27

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