Modeling the response of money and interest rates to monetary policy shocks: a segmented markets approach

Occhino, Filippo

doi:10.1016/s1094-2025(03)00047-4

Cited by 25 publications

(35 citation statements)

References 9 publications

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“…This finding of a negative response of income growth is similar to the results found in previous studies that examine the effect of monetary policy on output growth (see e.g. Christiano, Eichembaum and Evans, 1999;Occhino, 2004;Uhlig, 2005). Using monthly industrial production data, Romer and Romer (2004) also document similar results for the effects of contractionary monetary policy shocks.…”

Section: Aggregate Personal Incomesupporting

confidence: 88%

The Response of U.S. States to Exogenous Oil Supply and Monetary Policy Shocks

Atems

Lam²

2013

RAE

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We make use of new methodological advances in quantifying oil supply and monetary policy shocks that are exogenous with respect to macroeconomic conditions to examine the response of state economies to these shocks. Our approach is parsimonious and straightforward: once exogenous oil supply shocks and monetary policy shocks have been identified, the dynamic response of state economies to exogenous shocks can be analyzed directly using ordinary least squares (OLS) and other conventional methods of inference. The fact that no identifying assumptions are required makes our findings invariant to different identification schemes. Results indicate that an exogenous monetary policy shock typically causes a decrease in real personal income. The paper also documents a fair degree of similarity in the response of real personal income to exogenous oil supply across many states. Like the aggregate response, following an exogenous oil supply shock, real personal income decreases in many states.

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Section: Aggregate Personal Incomesupporting

confidence: 88%

The Response of U.S. States to Exogenous Oil Supply and Monetary Policy Shocks

Atems

Lam²

2013

RAE

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“…The economy is similar to the one in Alvarez and Atkeson (1996), Occhino (2000), Lucas, Alvarez and Weber (2001), and Occhino (2004). The main difference is that, in this paper, the aggregate endowment is stochastic.…”

Section: Modelmentioning

confidence: 80%

“…Although Christiano and Eichenbaum (1992), Alvarez and Atkeson (1997) and Alvarez, Atkeson and Kehoe (2002) have proposed economies where the liquidity effect lasts longer, how to model the economy's response in the periods after a monetary policy shock occurs remains an open and central research issue. This paper adopts a heterogenous agents variant of the limited participation framework, the segmented markets model, previously studied by Alvarez and Atkeson (1996), Occhino (2000), Alvarez, Lucas and Weber (2001), Lahiri, Singh and Vegh (2003), and Occhino (2004). The central feature is that some households are permanently excluded from financial markets.…”

Section: Introductionmentioning

confidence: 99%

Market Segmentation and the Response of the Real Interest Rate to Monetary Policy Shocks

Occhino

2008

Macroecon. Dynam.

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract Following a contractionary monetary policy shock, the aggregate output decreases over time for six to eight quarters, while the real interest rate increases immediately and remains high for three quarters. Full participation models can hardly replicate the joint response of the aggregate output and the real interest rate, while limited participation models can do so only in the impact period. This paper adopts a segmented markets framework where some households are permanently excluded from financial markets. The monetary authority controls the short-term nominal interest rate, and lets the money supply be determined by the bond market. The aggregate output and the nominal interest rate are modeled as exogenous autoregressive processes, while the real interest rate is determined endogenously. When markets are segmented enough, the model is able to account for both the persistent decreasing path of the aggregate output and the persistent increase in the real interest rate which follow an unanticipated increase in the nominal interest rate. The sign, the size and the persistence of the responses of the real interest rate and the money growth rate are close to those in the data. Terms of use: Documents in EconStor may

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“…Several papers, among which Alvarez, Lucas and Weber (2001), Lahiri, Singh and Vegh (2003) and Occhino (2004), have recently adopted the segmented markets model as a framework for monetary analysis. The characteristic assumption is that some households never participate in financial markets.…”

Section: Introductionmentioning

confidence: 99%

“…The characteristic assumption is that some households never participate in financial markets. Occhino (2004) argues that the segmented markets model displays more persistence than other limited participation models, like the models in Grossman and Weiss (1983), Lucas (1990), Fuerst (1992), and Christiano and Eichenbaum (1992), where households do not participate in financial markets only temporarily. Also, Occhino (2003) shows that, differently from representative agents monetary models, the segmented markets model can replicate the persistent decrease of the aggregate output growth rate, and the persistent increase of the real interest rate, which follow a contractionary monetary policy shock.…”

Section: Introductionmentioning

confidence: 99%