Open Market Shocks in a Business Cycle Model with Financial Intermediation

  • Burkhard Heer
  • Andreas Schabert


This paper presents a business cycle analysis of monetary policy shocks measured by disturbances to open market operations, i. e. the ratio of bonds to reserves. We develop a dynamic general equilibrium model with financial intermediation and staggered prices. In accordance with empirical evidence, 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 generates a persistent decline in output as well as a rise of nominal and real interest rates on bonds in response to a monetary contraction. In addition, the model’s ability to replicate second moments of empirical time series is superior to the one of a model with a money growth shock.


Monetary Policy Business Cycle Nominal Interest Rate Monetary Authority Monetary Aggregate 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


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Copyright information

© Springer Science+Business Media New York 2002

Authors and Affiliations

  • Burkhard Heer
    • 1
    • 2
  • Andreas Schabert
    • 3
  1. 1.Department of Public EconomicsUniversity of InnsbruckAustria
  2. 2.CESifoGermany
  3. 3.Department of EconomicsUniversity of CologneGermany

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