ISBN: 2893824455 9782893824451

Category: Unavailable

Page count: 36

This paper studies the persistent effects of monetary shocks on output. Previous empirical literature documents this persistence, but standard general-equilibrium models with sticky prices fail to generate output responses beyond the duration of nominal contracts. The paper constructs & estimates a general-equilibrium model with price rigidities, habit formation, and costly capital adjustment. The model is estimated by the maximum-likelihood method using US data on output, the real money stock, and the nominal interest rate. Econometric results are presented that indicate the role of habit formation & adjustment costs to capital in explaining the output effects of monetary policy.