The Timing of Monetary Policy Shocks

53 Pages Posted: 10 Aug 2006

See all articles by Giovanni Olivei

Giovanni Olivei

Federal Reserve Bank of Boston

Silvana Tenreyro

London School of Economics (LSE)

Multiple version iconThere are 2 versions of this paper

Date Written: June 2006

Abstract

A vast empirical literature has documented delayed and persistent effects of monetary policy shocks on output. We show that this finding results from the aggregation of output impulse responses that differ sharply depending on the timing of the shock: When the monetary policy shock takes place in the first two quarters of the year, the response of output is quick, sizable, and dies out at a relatively fast pace. In contrast, output responds very little when the shock takes place in the third or fourth quarter. We propose a potential explanation for the differential responses based on uneven staggering of wage contracts across quarters. Using a stylized dynamic general equilibrium model, we show that a very modest amount of uneven staggering can generate differences in output responses similar to those found in the data.

Keywords: Monetary policy, business cycles, nominal rigidity, impulse-response function

JEL Classification: E1, E31, E32, E52, E58

Suggested Citation

Olivei, Giovanni and Tenreyro, Silvana, The Timing of Monetary Policy Shocks (June 2006). CEPR Discussion Paper No. 5716. Available at SSRN: https://ssrn.com/abstract=923609

Giovanni Olivei (Contact Author)

Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

Silvana Tenreyro

London School of Economics (LSE) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

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