Download or read book Information Based Heterogeneity in Expectations and Optimal Monetary Policy written by Alberto Coco and published by . This book was released on 2014 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyses optimal monetary policy and welfare implications of three endogenous processes in forming inflation expectations, which depart from the standard case of rational expectations. Two processes assume heterogeneous expectations driven either by discretionary central banks through the release of information or by agents through discrete choice among two forecast rules; the third process is a Bayesian learning about the central bank's inflation target. Transitional dynamics towards steady-state show that, overall, an active and transparent monetary policy promoting rationality and learning may raise welfare during disinflations, while a passive and less transparent attitude may stabilise output and raise welfare through inflationary surprises.

Download or read book Preference Heterogeneity and Optimal Monetary Policy written by Burak Uras and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Optimal Monetary Policy Under Bounded Rationality written by Jonathan Benchimol and published by International Monetary Fund. This book was released on 2019-08-02 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: The form of bounded rationality characterizing the representative agent is key in the choice of the optimal monetary policy regime. While inflation targeting prevails for myopia that distorts agents' inflation expectations, price level targeting emerges as the optimal policy under myopia regarding the output gap, revenue, or interest rate. To the extent that bygones are not bygones under price level targeting, rational inflation expectations is a minimal condition for optimality in a behavioral world. Instrument rules implementation of this optimal policy is shown to be infeasible, questioning the ability of simple rules à la Taylor (1993) to assist the conduct of monetary policy. Bounded rationality is not necessarily associated with welfare losses.

Download or read book Optimal Monetary Policy Under Heterogeneity in Currency Trade written by and published by . This book was released on 2007 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Inflation Expectations written by Peter J. N. Sinclair and published by Routledge. This book was released on 2009-12-16 with total page 402 pages. Available in PDF, EPUB and Kindle. Book excerpt: Inflation is regarded by the many as a menace that damages business and can only make life worse for households. Keeping it low depends critically on ensuring that firms and workers expect it to be low. So expectations of inflation are a key influence on national economic welfare. This collection pulls together a galaxy of world experts (including Roy Batchelor, Richard Curtin and Staffan Linden) on inflation expectations to debate different aspects of the issues involved. The main focus of the volume is on likely inflation developments. A number of factors have led practitioners and academic observers of monetary policy to place increasing emphasis recently on inflation expectations. One is the spread of inflation targeting, invented in New Zealand over 15 years ago, but now encompassing many important economies including Brazil, Canada, Israel and Great Britain. Even more significantly, the European Central Bank, the Bank of Japan and the United States Federal Bank are the leading members of another group of monetary institutions all considering or implementing moves in the same direction. A second is the large reduction in actual inflation that has been observed in most countries over the past decade or so. These considerations underscore the critical – and largely underrecognized - importance of inflation expectations. They emphasize the importance of the issues, and the great need for a volume that offers a clear, systematic treatment of them. This book, under the steely editorship of Peter Sinclair, should prove very important for policy makers and monetary economists alike.

Download or read book Monetary Policy Heterogeneous Expectations and Uncertainty written by Tsvetomira Tsenova and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper shows that monetary policy does and should respond systematically to time variation in ex-ante uncertainty and heterogeneity in private sector's views over the business cycle. Empirical tests are initially conducted on the basis of an augmented forward-looking Taylor rule framework, modified to account for learning and robustness. Normative justification is further provided by evaluating the optimal forecast-based monetary policy response under imperfect knowledge given a set of heterogeneous nested reference structural models, estimated to best fit private sector's forecasts in addition to contemporaneous data.

Download or read book Monetary Policy Heterogeneous Expectations and Structural Uncertainty written by Tsvetomira Tsenova and published by . This book was released on 2017 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper shows that monetary policy does and should respond systematically to time variation in ex-ante uncertainty and heterogeneity in private sector's views over the business cycle. Empirical tests are initially conducted on the basis of an augmented forward-looking Taylor rule framework, modified to account for learning and robustness. Normative justification is further provided by evaluating the optimal forecast-based monetary policy response under imperfect knowledge given a set of heterogeneous nested reference structural models, estimated to best fit private sector's forecasts in addition to contemporaneous data.

Download or read book Optimal Monetary Policy Under Heterogeneous Beliefs written by David Finck and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We use a New Keynesian model that features rational and non-rational households. Assuming that both the fraction of rational households and the expectations formation process are uncertain from the perspective of the central bank, we derive robust optimal discretionary monetary policy in a simple min-max framework where the central bank plays a zero-sum game versus a fictitious, malevolent evil agent. We show that the central bank is able to improve welfare if it accounts for uncertainty while the model is being distorted. Even if the central bank accounts for the worst possible outcomes while the model is being undistorted, the central bank can still reduce the welfare loss by implementing a more aggressive targeting rule that favorably affects the inflation-output stabilization trade-off.

Download or read book Heterogeneous Information About the Term Structure of Interest Rates Least Squares Learning and Optimal Interest Rate Rules for Inflation Targeting written by Eric Schaling and published by . This book was released on 2007 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we incorporate the term structure of interest rates in a standard inflation forecast targeting framework. Learning about the transmission process of monetary policy is introduced by having heterogeneous agents - i.e., the central bank and private agents - who have different information sets about the future sequence of short-term interest rates. We analyse inflation forecast targeting in two environments. One in which the central bank has perfect knowledge, in the sense that it understands and observes the process by which private sector interest rate expectations are generated, and one in which the central bank has imperfect knowledge and has to learn the private sector forecasting rule for short-term interest rates. In the case of imperfect knowledge, the central bank has to learn about private sector interest rate expectations, as the latter affect the impact of monetary policy through the expectations theory of the term structure of interest rates. Here, following Evans and Honkapohja (2001), the learning scheme we investigate is that of least-squares learning (recursive OLS) using the Kalman filter. We find that optimal monetary policy under learning is a policy that separates estimation and control. Therefore, this model suggests that the practical relevance of the breakdown of the separation principle and the need for experimentation in policy may be limited.

Download or read book Heterogeneity in Expectations Official Information and Price setting Behavior written by Gustavo Rojas-Matute and published by . This book was released on 2021 with total page 95 pages. Available in PDF, EPUB and Kindle. Book excerpt: How firms set their prices is of special importance in macroeconomics and, in particular, for monetary policy. This dissertation investigates price-setting behavior from two different perspectives and two different environments, from low inflation to hyperinflation.In Chapter 1, I point out that firms seem to pay more attention to GDP growth rates in economies with well-anchored inflation expectations than CPI inflation. I study how this heterogeneity affects price-setting behavior. I analyze three types of firms: those that only track GDP, those that only track CPI, and those that track both. The findings can be summarized as follows: (i) both GDP growth rate and CPI inflation expectations affect price-setting behavior but in opposite directions; (ii) the impact of long-run inflation expectations on price-setting behavior is more substantial than short-run expectations; (iii) in the presence of adjustment costs, the frequency of price changes of those firms that only track GDP growth rate is highly correlated with the series estimated by Nakamura et al., (2018) with data provided by the Bureau of Labor Statistics (BLS); (iv) in the short run, the output response to a monetary shock is larger while the price response is smaller in those firms that only track GDP growth rate than in those firms that only update CPI; (v) adjustment costs amplify monetary non-neutrality in only-GDP firms. If the aggregate effect is driven by ``only-GDP" firms, as suggested in (iii), the results are consistent with recent findings suggesting that the Phillips curve is flat (Del Negro et al., 2020, Hazell et al., 2020).In Chapter 2, I take advantage of a ``natural experiment" to study the impact of the lack of official information on price-setting behavior. In particular, I study a case between December 2015 and May 2019, when the Central Bank of Venezuela stopped releasing official economic statistics, including inflation rate, GDP, and balance of payments. Using a combination of data sets from the Billion Prices Project, I find that the lack of official information increases the size of price changes (intensive margin), leading the intensive margin to be the main driver of the variance of the inflation. The empirical results are confirmed with the calibration of a price-setting behavior model. The model suggests that the turning point occurred when the Central Bank started delaying the publications (2012-2014) before deciding to stop them entirely in 2015. These findings are groundbreaking because they occur in a context of hyperinflation where prices change very frequently and differ from the most recent literature that has shown that the extensive margin contributes the most during high inflation and hyperinflation (Alvarez et al., 2019, Gagnon, 2009). The evidence also suggests that, despite the surge of different non-official inflation indicators publicly available, firms rely on private sources.

Download or read book Optimal Research in Financial Markets with Heterogeneous Private Information written by Katrin Tinn and published by . This book was released on 2005 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book NBER Macroeconomics Annual 2003 written by Mark Gertler and published by Mit Press. This book was released on 2004 with total page 432 pages. Available in PDF, EPUB and Kindle. Book excerpt: The NBER Macroeconomics Annual presents pioneering work in macroeconomics by leading academic researchers to an audience of public policymakers and the academic community. Each commissioned paper is followed by comments and discussion. This year's edition provides a mix of cutting-edge research and policy analysis on such topics as productivity and information technology, the increase in wealth inequality, behavioral economics, and inflation.

Download or read book Expectations Anchoring and Inflation Persistence written by Mr.Rudolfs Bems and published by International Monetary Fund. This book was released on 2018-12-11 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: Understanding the sources of inflation persistence is crucial for monetary policy. This paper provides an empirical assessment of the influence of inflation expectations' anchoring on the persistence of inflation. We construct a novel index of inflation expectations' anchoring using survey-based inflation forecasts for 45 economies starting in 1989. We then study the response of consumer prices to terms-of-trade shocks for countries with flexible exchange rates. We find that these shocks have a significant and persistent effect on consumer price inflation when expectations are poorly anchored. By contrast, inflation reacts by less and returns quickly to its pre-shock level when expectations are strongly anchored.

Download or read book Handbook of Computational Economics written by Leigh Tesfatsion and published by Elsevier. This book was released on 2006-05-15 with total page 905 pages. Available in PDF, EPUB and Kindle. Book excerpt: The explosive growth in computational power over the past several decades offers new tools and opportunities for economists. This handbook volume surveys recent research on Agent-based Computational Economics (ACE), the computational study of economic processes modeled as dynamic systems of interacting agents. Empirical referents for "agents" in ACE models can range from individuals or social groups with learning capabilities to physical world features with no cognitive function. Topics covered include: learning; empirical validation; network economics; social dynamics; financial markets; innovation and technological change; organizations; market design; automated markets and trading agents; political economy; social-ecological systems; computational laboratory development; and general methodological issues. *Every volume contains contributions from leading researchers *Each Handbook presents an accurate, self-contained survey of a particular topic *The series provides comprehensive and accessible surveys

Download or read book The Great Inflation written by Michael D. Bordo and published by University of Chicago Press. This book was released on 2013-06-28 with total page 545 pages. Available in PDF, EPUB and Kindle. Book excerpt: Controlling inflation is among the most important objectives of economic policy. By maintaining price stability, policy makers are able to reduce uncertainty, improve price-monitoring mechanisms, and facilitate more efficient planning and allocation of resources, thereby raising productivity. This volume focuses on understanding the causes of the Great Inflation of the 1970s and ’80s, which saw rising inflation in many nations, and which propelled interest rates across the developing world into the double digits. In the decades since, the immediate cause of the period’s rise in inflation has been the subject of considerable debate. Among the areas of contention are the role of monetary policy in driving inflation and the implications this had both for policy design and for evaluating the performance of those who set the policy. Here, contributors map monetary policy from the 1960s to the present, shedding light on the ways in which the lessons of the Great Inflation were absorbed and applied to today’s global and increasingly complex economic environment.

Download or read book Hysteresis and Business Cycles written by Ms.Valerie Cerra and published by International Monetary Fund. This book was released on 2020-05-29 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: Traditionally, economic growth and business cycles have been treated independently. However, the dependence of GDP levels on its history of shocks, what economists refer to as “hysteresis,” argues for unifying the analysis of growth and cycles. In this paper, we review the recent empirical and theoretical literature that motivate this paradigm shift. The renewed interest in hysteresis has been sparked by the persistence of the Global Financial Crisis and fears of a slow recovery from the Covid-19 crisis. The findings of the recent literature have far-reaching conceptual and policy implications. In recessions, monetary and fiscal policies need to be more active to avoid the permanent scars of a downturn. And in good times, running a high-pressure economy could have permanent positive effects.

Download or read book Learning and Expectations in Macroeconomics written by George W. Evans and published by Princeton University Press. This book was released on 2012-01-06 with total page 440 pages. Available in PDF, EPUB and Kindle. Book excerpt: A crucial challenge for economists is figuring out how people interpret the world and form expectations that will likely influence their economic activity. Inflation, asset prices, exchange rates, investment, and consumption are just some of the economic variables that are largely explained by expectations. Here George Evans and Seppo Honkapohja bring new explanatory power to a variety of expectation formation models by focusing on the learning factor. Whereas the rational expectations paradigm offers the prevailing method to determining expectations, it assumes very theoretical knowledge on the part of economic actors. Evans and Honkapohja contribute to a growing body of research positing that households and firms learn by making forecasts using observed data, updating their forecast rules over time in response to errors. This book is the first systematic development of the new statistical learning approach. Depending on the particular economic structure, the economy may converge to a standard rational-expectations or a "rational bubble" solution, or exhibit persistent learning dynamics. The learning approach also provides tools to assess the importance of new models with expectational indeterminacy, in which expectations are an independent cause of macroeconomic fluctuations. Moreover, learning dynamics provide a theory for the evolution of expectations and selection between alternative equilibria, with implications for business cycles, asset price volatility, and policy. This book provides an authoritative treatment of this emerging field, developing the analytical techniques in detail and using them to synthesize and extend existing research.