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The Timing of Monetary Policy Shocks

Giovanni Olivei and Silvana Tenreyro ()

No 5716, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: A vast empirical literature has documented delayed and persistent effects of monetary policy shocks on output. We show that this finding results from the aggregation of output impulse responses that differ sharply depending on the timing of the shock: When the monetary policy shock takes place in the first two quarters of the year, the response of output is quick, sizable, and dies out at a relatively fast pace. In contrast, output responds very little when the shock takes place in the third or fourth quarter. We propose a potential explanation for the differential responses based on uneven staggering of wage contracts across quarters. Using a stylized dynamic general equilibrium model, we show that a very modest amount of uneven staggering can generate differences in output responses similar to those found in the data.

Keywords: business cycles; impulse-response function; monetary policy; nominal rigidity (search for similar items in EconPapers)
JEL-codes: E1 E31 E32 E52 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
Date: 2006-06
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Journal Article: The Timing of Monetary Policy Shocks (2007) Downloads
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Working Paper: The timing of monetary policy shocks (2006) Downloads
Working Paper: The timing of monetary policy shocks (2004) Downloads
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