Habit formation and the persistence of monetary shocks |
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| Authors: | Hafedh Bouakez Francisco J. Ruge-Murcia |
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| Affiliation: | a Institute of Applied Economics and CIREQ, HEC Montréal, 3000 chemin de la Côte-Sainte-Catherine, Montréal, Qué., Canada H3T 2A7
b Département de Sciences Économiques and CIREQ, Université de Montréal, C.P. 6128, succursale Centre-ville, Montréal, Qué., Canada H3C 3J7 |
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| Abstract: | The dynamic effects and relative importance of monetary shocks in the US business cycle are studied using a sticky-price dynamic stochastic general equilibrium model with habit formation and capital adjustment costs. The model is estimated via maximum likelihood using data on output, real money balances, and the nominal interest rate. Econometric results indicate that the model has a strong internal propagation mechanism that can explain the persistent and hump-shaped response of US output and consumption to monetary shocks. |
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| Keywords: | E3 E4 E5 |
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