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Heer, Burkhard
Schabert, Andreas
Year of Publication: 
Series/Report no.: 
CESifo Working Paper 396
This paper presents a business cycle analysis of monetary policy shocks measured by disturbances to open market operations, i.e. the ratio of open market papers to non-borrowed reserves. We find empirical evidence for the usefulness of this policy measure, as it predicts significant declines in output, M1 growth, and prices, as well as a significant rise in interest rates after a monetary contraction. We develop a dynamic general equilibrium model with financial intermediation where monetary policy is conducted via open market operations. In accordance with our empirical findings, a monetary tightening leads to a fall in output, monetary aggregates, and factor prices. In contrast to an alternative model specification with money growth shocks, our model with disturbances to open market operations also generates a persistent rise of nominal and real interest rates on securities in response to a monetary contraction. Furthermore, the introduction of staggered prices is demonstra-ted to improve the model's ability to replicate second moments of empirical time series.
Monetary policy
financial intermediation
open market operations
business cycles
price stickiness
Document Type: 
Working Paper

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