Dynamic effects of monetary policy shocks on macroeconomic volatility

Haroon Mumtaz and Konstantinos Theodoridis

We develop a VAR that allows the estimation of the impact of monetary policy shocks on volatility. Estimates for the US suggest that an increase in the policy rate by 1% is associated with a rise in unemployment and inflation volatility of about 15%. Using a New Keynesian model, with search and matching labour frictions and Epstein-Zin preferences we show that these volatility effects are driven by the coexistence of agents' fears of unemployment and concerns about the (in) ability of the monetary authority to reverse deviations from the policy rule with the impact magnified by the agents' preferences.

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Year of publication:	October 2018
Authors:	Mumtaz, Haroon ; Theodoridis, Konstantinos
Publisher:	Cardiff, United Kingdom : Cardiff Business School, Cardiff University
Subject:	DSGE \| Non-Linear SVAR \| New Keynesian \| Search and Matching Frictions \| Epstein-Zin preferences \| Stochastic Volatility \| Geldpolitik \| Monetary policy \| Volatilität \| Volatility \| Schock \| Shock \| Theorie \| Theory \| Dynamisches Gleichgewicht \| Dynamic equilibrium \| Neoklassische Synthese \| Neoclassical synthesis \| VAR-Modell \| VAR model \| Stochastischer Prozess \| Stochastic process \| Konjunktur \| Business cycle \| Wirkungsanalyse \| Impact assessment \| Matching

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Extent:	1 Online-Ressource (circa 97 Seiten) Illustrationen
Series:	Cardiff economics working papers. - Cardiff : [Verlag nicht ermittelbar], ISSN 1749-6101, ZDB-ID 2257349-5. - Vol. no. E2018, 21
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Graue Literatur ; Non-commercial literature ; Arbeitspapier ; Working Paper
Language:	English
Other identifiers:	hdl:10419/230427 [Handle]
Classification:	E30 - Prices, Business Fluctuations, and Cycles. General ; E40 - Money and Interest Rates. General ; E52 - Monetary Policy (Targets, Instruments, and Effects) ; C11 - Bayesian Analysis ; C13 - Estimation ; C15 - Statistical Simulation Methods; Monte Carlo Methods ; C50 - Econometric Modeling. General
Source:	ECONIS - Online Catalogue of the ZBW

Persistent link: https://www.econbiz.de/10011928806