Can monetary policy trigger pronounced boom-bust cycles in house prices and create persistent business cycles? We address this question by building heuristics into an otherwise standard DSGE model. As a result, monetary policy sets off waves of optimism and pessimism (“animal spirits”) that...

We study the drivers of fluctuations in the Irish housing market by developing and estimating a dynamic stochastic general equilibrium (DSGE) model of Ireland as a member of the European Economic Monetary Union (EMU). We estimate the model with Bayesian methods using time series for both Ireland...

We challenge the view that the negative correlation between the Federal Funds and the Euler equation interest rate is linked to monetary policy. Using Monte Carlo experiments, we show that the negative correlation can be explained by risk premium disturbances.

We investigate the role of consumer confidence in the transmission of monetary policy shocks from an empirical and theoretical perspective. Standard VAR based analysis suggests that an empirical measure of consumer confidence drops significantly after a monetary tightening and amplifies the...

This paper challenges the view that the observed negative correlation between the Federal Funds rate and the interest rate implied by consumption Euler equations is systematically linked to monetary policy. By using a Monte Carlo experiment, we show that stochastic risk premium disturbances have...