The Opportunity Cost of Money and the Relevance of Monetary Policy

Joseph Haslag and Dong Ho Kang ()
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Dong Ho Kang: Center for Macroeconomic Research, University of Cologne, Germany

No 2410, Working Papers from Department of Economics, University of Missouri

Abstract: Over the past decade, researchers have identified monetary policy surprises using highfrequency movements in futures contract prices. Based on this identification strategy, the evidence suggests that contractionary monetary policy surprises are significantly related to decreases in output and the price level. In other words, monetary policy is relevant. With more than a decade of data with nominal rates at or near the zero lower bound and interest on reserves, the open question is whether this relevance depends on the opportunity cost of holding money. We test this hypothesis, reporting impulse responses that are relevant when opportunity costs are greater than zero, but irrelevant when opportunity costs are close to zero. Hence, we conclude that monetary policy is conditionally relevant.

Keywords: high-frequency; monetary policy surprises; interest on reserves; conditional relevanc (search for similar items in EconPapers)
JEL-codes: E32 E44 E52 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2024-10
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
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