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Permanent and transitory policy shocks in an empirical macro model with asymmetric information
- Despite a large literature documenting that the efficacy of monetary policy depends on how inflation expectations are anchored, many monetary policy models assume: (1) the inflation target of monetary policy is constant; and, (2) the inflation target is known by all economic agents. This paper proposes an empirical specification with two policy shocks: permanent changes to the inflation target and transitory perturbations of the short-term real rate. The public sector cannot correctly distinguish between these two shocks and, under incomplete learning, private perceptions of the inflation target will not equal the true target. The paper shows how imperfect policy credibility can affect economic responses to structural shocks, including transition to a new inflation target - a question that cannot be addressed by many commonly used empirical and theoretical models. In contrast to models where all monetary policy actions are transient, the proposed specification implies that sizable movements in historical bond yields and inflation are attributable to perceptions of permanent shocks in target inflation.
Verfasserangaben: | Sharon Kozicki, Peter A. Tinsley |
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URN: | urn:nbn:de:hebis:30-10461 |
Titel des übergeordneten Werkes (Deutsch): | Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2003,41 |
Schriftenreihe (Bandnummer): | CFS working paper series (2003, 41) |
Dokumentart: | Arbeitspapier |
Sprache: | Englisch |
Jahr der Fertigstellung: | 2003 |
Jahr der Erstveröffentlichung: | 2003 |
Veröffentlichende Institution: | Universitätsbibliothek Johann Christian Senckenberg |
Datum der Freischaltung: | 13.06.2005 |
Freies Schlagwort / Tag: | inflation target; learning; policy credibility; shifting endpoint; term structure of interest; time-varying natural rate; transmission mechanism |
GND-Schlagwort: | Geldpolitik; Inflation Targeting |
Ausgabe / Heft: | This version: October 28, 2003 |
HeBIS-PPN: | 204006058 |
Institute: | Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) |
DDC-Klassifikation: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
Lizenz (Deutsch): | Deutsches Urheberrecht |