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Kiel Institute for World Economics Kiel Working Papers, Kiel Institute for World Economics

No 1214:
On the Hump-Shaped Output Effect of Monetary Policy in an Open Economy

Christian Pierdzioch and Serkan Yener

Abstract: Results of empirical research have revealed a characteristic hump-shaped effect of monetary policy shocks on output: the effect builds to a peak after several months and then gradually dies out. We analyze, in the context of a "new open economy macroeconomics" model, factors that imply a hump-shaped effect of a monetary policy shock on output. We find that a hump-shaped effect of output is likely to result if the model features a "catching up with the Joneses" effect, pricing-to-market behavior of firms, and imperfect international financial market integration.

Keywords: Monetary policy; Catching up with the Joneses; Pricing-to-market; International financial markets; (follow links to similar papers)

JEL-Codes: F31,; F32,; F41; (follow links to similar papers)

20 pages, May 2004

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