Showing 1 - 10 of 29
This paper demonstrates that an estimated, structural, small open-economy model of the Canadian economy cannot account for the substantial influence of foreign-sourced disturbances identified in numerous reduced-form studies. The benchmark model assumes uncorrelated shocks across countries and...
Persistent link: https://www.econbiz.de/10010292184
This paper explores optimal policy design in an estimated model of three small open economies: Australia, Canada and New Zealand. Within a class of generalized Taylor rules, we show that to stabilize a weighted objective of output, consumer price inflation and nominal interest variation optimal...
Persistent link: https://www.econbiz.de/10010292187
In this note we propose model selection criteria (MSC) for unconditional moment models using empirical likelihood (EL) statistics in the construction of the MSC The use of EL-statistics in lieu of the more common J-statistics leads to a much more transparent interpretation of the MSC by...
Persistent link: https://www.econbiz.de/10010293457
Under rational expectations, monetary policy is generally highly effective in stabilizing the economy. Aggregate demand management operates through the expectations hypothesis of the term structure: Anticipated movements in future short-term interest rates control current demand. This paper...
Persistent link: https://www.econbiz.de/10010333054
This paper proposes a theory of the fiscal foundations of inflation based on imperfect knowledge and learning. The theory is similar in spirit to, but distinct from, unpleasant monetarist arithmetic and the fiscal theory of the price level. Because the assumption of imperfect knowledge breaks...
Persistent link: https://www.econbiz.de/10010333563
We study zero interest-rate policy in response to a large negative demand shock when long-run expectations can fall over time. Because falling expectations make monetary policy less effective by raising real interest rates, the optimal forward guidance policy makes large front-loaded promises to...
Persistent link: https://www.econbiz.de/10012815304
Ordinary Least Squares (OLS) estimation of monetary policy rules produces potentially inconsistent estimates of policy parameters. The reason is that central banks react to variables, such as in ation and the output gap, which are endogenous to monetary policy shocks. Endogeneity implies a...
Persistent link: https://www.econbiz.de/10012817076
We develop a theory of low-frequency movements in in ation expectations, and use it to interpret joint dynamics of in ation and in ation expectations for the United States and other countries over the post-war period. In our theory long-run in ation expectations are endogenous. They are driven...
Persistent link: https://www.econbiz.de/10012817079
This paper considers the implications of an important source of model misspecification for the design of monetary policy rules: the assumed manner of expectations formation. Following a considerable literature on learning, it is assumed that private agents seek to maximize their objectives...
Persistent link: https://www.econbiz.de/10010397426
This paper analyzes how the formation of expectations constrains monetary and fiscal policy design. Economic agents have imperfect knowledge about the economic environment and the policy regime in place. Households and firms learn about the policy regime using historical data. Regime uncertainty...
Persistent link: https://www.econbiz.de/10010283550