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When countries are hit by supply shocks, central banks often face the dilemma of either looking through such shocks or reacting to them to ensure that inflation expectations remain anchored. In this paper, we propose a tractable framework to capture this dilemma and explore optimal policy under...
Persistent link: https://www.econbiz.de/10014372498
This paper derives the optimal monetary-policy rule in a simple model with anchored inflation expectations and an effective lower bound (ELB) on interest rates, assuming a long-run inflation goal of 2%. With fully anchored expectations, the optimal policy is a version of average inflation...
Persistent link: https://www.econbiz.de/10015145111
This paper investigates the role that imperfect knowledge about the structure of the economy plays in the formation of expectations, macroeconomic dynamics, and the efficient formulation of monetary policy. Economic agents rely on an adaptive learning technology to form expectations and to...
Persistent link: https://www.econbiz.de/10012468813
Using a daily survey of U.S. households, we study how the Federal Reserve's announcement of its new strategy of average inflation targeting affected households' expectations. Starting with the day of the announcement, there is a very small uptick in the minority of households reporting that they...
Persistent link: https://www.econbiz.de/10012481139
crisis (that is, a sharp decline in economic activity). Within the example, there are large benefits to being able to reduce …
Persistent link: https://www.econbiz.de/10012456664
We explore two issues triggered by the crisis. First, in most advanced countries, output remains far below the pre …
Persistent link: https://www.econbiz.de/10012456944
The valuation of government debt is subject to strategic uncertainty, stemming from investors' sentiments. Pessimistic lenders, fearing default, bid down the price of debt. This leaves a government with a higher debt burden, increasing the likelihood of default and thus confirming the pessimism...
Persistent link: https://www.econbiz.de/10012458015
We develop and estimate a general equilibrium model in which monetary policy can deviate from active inflation stabilization and agents face uncertainty about the nature of these deviations. When observing a deviation, agents conduct Bayesian learning to infer its likely duration. Under...
Persistent link: https://www.econbiz.de/10012458099
We reinterpret post World War II US economic history using an estimated microfounded model that allows for changes in the monetary/fiscal policy mix. We find that the fiscal authority was the leading authority in the '60s and the '70s. The appointment of Volcker marked a change in the conduct of...
Persistent link: https://www.econbiz.de/10012458470
unconventional monetary policy, followed in the wake of the 2008 financial crisis, was effective in stabilizing inflation …'s arsenal that can be used to help prevent deflation in the wake of a financial crisis …
Persistent link: https://www.econbiz.de/10012460653