Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/230427 
Year of Publication: 
2018
Series/Report no.: 
Cardiff Economics Working Papers No. E2018/21
Publisher: 
Cardiff University, Cardiff Business School, Cardiff
Abstract: 
We develop a VAR that allows the estimation of the impact of monetary policy shocks on volatility. Estimates for the US suggest that an increase in the policy rate by 1% is associated with a rise in unemployment and inflation volatility of about 15%. Using a New Keynesian model, with search and matching labour frictions and Epstein-Zin preferences we show that these volatility effects are driven by the coexistence of agents' fears of unemployment and concerns about the (in) ability of the monetary authority to reverse deviations from the policy rule with the impact magnified by the agents' preferences.
Subjects: 
DSGE
Non-Linear SVAR
New Keynesian
Search and Matching Frictions
Epstein-Zin preferences
Stochastic Volatility
JEL: 
E30
E40
E52
C11
C13
C15
C50
Document Type: 
Working Paper

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