EconPapers    
Economics at your fingertips  
 

The IS Curve and the Transmission of Monetary Policy: Is there a Puzzle?

Charles Goodhart () and Boris Hofmann ()

FMG Special Papers from Financial Markets Group

Abstract: In this paper we assess the performance of the New Keynesian IS Curve for the G7 countries. We find that there is an IS puzzle for both the purely backwardlooking as well as for the forward-looking IS curve. The real interest rate does not have a significantly negative effect on the output gap. Based on an extended specification of the IS curve, also including asset prices and monetary aggregates, we are able to restore a significantly negative interest rate effect on aggregate demand in all countries. This finding suggests that a richer specification of the IS curve in empirical work may be necessary in order to obtain an unbiased estimate of the effect of monetary policy on aggregate demand.

Date: 2003-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed

Downloads: (external link)
http://www.lse.ac.uk/fmg/documents/specialPapers/2003/sp150.pdf (application/pdf)

Related works:
Journal Article: The IS curve and the transmission of monetary policy: is there a puzzle? (2005) Downloads
Working Paper: The IS curve and the transmission of monetary policy: Is there a puzzle? (2003) Downloads
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: https://EconPapers.repec.org/RePEc:fmg:fmgsps:sp150

Access Statistics for this paper

More papers in FMG Special Papers from Financial Markets Group
Bibliographic data for series maintained by The FMG Administration ().

 
Page updated 2020-09-18
Handle: RePEc:fmg:fmgsps:sp150