Working Paper

On the Hump-Shaped Output Effect of Monetary Policy in an Open Economy

Authors

  • Christian Pierdzioch
  • Serkan Yener
Publication Date

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.

Info

JEL Classification
F31, F32, F41

Key Words

  • Catching up with the Joneses
  • international financial markets
  • monetary policy
  • Pricing-to-market