The Asymmetric Effects of Monetary Policy in General Equilibrium

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Pontificia Universidad Católica del Perú. CENTRUM

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Abstract

The study involved extending a dynamic general equilibrium neoKeynesian model by considering preferences that exhibit intertemporal nonhomotheticity. Introducing this feature generates a state-dependent intertemporal elasticity of substitution, which induces asymmetric shifts in aggregate demand in response to monetary policy shocks. The effect, in combination with a convex Phillips curve, generates in equilibrium asymmetric responses in output and inflation to monetary policy shocks similar to those observed in the data. In particular, a higher response of both output and inflation to policy shocks exists when economy growth is temporarily high than temporarily low.

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Except where otherwised noted, this item's license is described as info:eu-repo/semantics/openAccess