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Monetary Misperceptions, Output and Inflation Dynamics

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  • Fabrice Collard

    ()
    (School of Economics, University of Adelaide)

  • Harris Dellas

    ()
    (Department of Economics, University of Bern)

Abstract

We revisit the contribution of misperceived money to business cycles, and in particular to the inertial dynamics of inflation following a monetary policy shock. We establish three things. First, the difference between preliminary and revised money data captures monetary misperceptions well. Second, misperceived money is quantitatively substantial and also matters significantly for economic activity. And third, imperfect information about monetary aggregates can help the standard NK model exhibit inertial inflation dynamics.

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File URL: http://www.economics.adelaide.edu.au/research/papers/doc/wp2009-23.pdf
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Bibliographic Info

Paper provided by University of Adelaide, School of Economics in its series School of Economics Working Papers with number 2009-23.

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Length: 45 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:adl:wpaper:2009-23

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Postal: Adelaide SA 5005
Phone: (618) 8303 5540
Web page: http://www.economics.adelaide.edu.au/
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Keywords: monetary misperceptions; measurement error; unanticipated money; ination inertia;

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References

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  1. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," NBER Working Papers 8290, National Bureau of Economic Research, Inc.
  2. Frank Smets & Raf Wouters, 2007. "Shocks and Frictions in US Business Cycles : a Bayesian DSGE Approach," Working Paper Research 109, National Bank of Belgium.
  3. Boschen, John F. & Grossman, Herschel I., 1982. "Tests of equilibrium macroeconomics using contemporaneous monetary data," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 309-333.
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  6. King, Robert G., 1981. "Monetary information and monetary neutrality," Journal of Monetary Economics, Elsevier, vol. 7(2), pages 195-206.
  7. Norman R. Swanson & Jeffery D. Amato, 2000. "The real-time predictive content of money for output," BIS Working Papers 96, Bank for International Settlements.
  8. James Bullard & Stefano Eusepi, 2003. "Did the Great Inflation occur despite policymaker commitment to a Taylor rule?," Working Paper 2003-20, Federal Reserve Bank of Atlanta.
  9. Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 221-235, April.
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  11. Robert J. Barro & Mark Rush, 1980. "Unanticipated Money and Economic Activity," NBER Chapters, in: Rational Expectations and Economic Policy, pages 23-73 National Bureau of Economic Research, Inc.
  12. Olivier Coibion & Yuriy Gorodnichenko, 2011. "Strategic Interaction among Heterogeneous Price-Setters in an Estimated DSGE Model," The Review of Economics and Statistics, MIT Press, vol. 93(3), pages 920-940, August.
  13. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
  14. Dellas, Harris, 2006. "Monetary Shocks and Inflation Dynamics in the New Keynesian Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(2), pages 543-551, March.
  15. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers 2139, C.E.P.R. Discussion Papers.
  16. Stanley Fischer, 1980. "Rational Expectations and Economic Policy," NBER Books, National Bureau of Economic Research, Inc, number fisc80-1.
  17. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
  18. Knut Anton Mork, 1990. "Forecastable Money-Growth Revisions: A Closer Look at the Data," Canadian Journal of Economics, Canadian Economics Association, vol. 23(3), pages 593-616, August.
  19. Svensson, Lars & Woodford, Michael, 2000. "Indicator Variables for Optimal Policy," Seminar Papers 688, Stockholm University, Institute for International Economic Studies.
  20. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
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Citations

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Cited by:
  1. Fabrice Collard & Harris Dellas & Frank Smets, 2009. "Imperfect Information and the Business Cycle," School of Economics Working Papers 2009-15, University of Adelaide, School of Economics.
  2. Baxter, Brad & Graham, Liam & Wright, Stephen, 2011. "Invertible and non-invertible information sets in linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 35(3), pages 295-311, March.
  3. Givens, Gregory & Salemi, Michael, 2012. "Inferring monetary policy objectives with a partially observed state," MPRA Paper 39353, University Library of Munich, Germany.

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