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The Effects of Anticipated Future Change in the Monetary Policy Regime

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  • Juraj Antal
  • Frantisek Brazdik

Abstract

In this paper, we investigate the effects of an anticipated future change in monetary policy regime in small open economies targeting either inflation or the exchange rate. The announcement of a future change in the monetary policy regime triggers an immediate change in the behavior of households and firms. As a result the economy starts to behave differently even though the current monetary policy rule remains the same for the whole period before the monetary policy regime change. Thus, the behavior of economic agents over the transitory period to the new monetary policy rule depends not only on the current monetary policy rule in this transitory period, but also on the anticipated future monetary policy regime. Given a common future monetary policy regime, the behavior of inflation and exchange rate targeting economies converges after the announcement.

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Bibliographic Info

Paper provided by Czech National Bank, Research Department in its series Working Papers with number 2007/15.

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Date of creation: Dec 2007
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Handle: RePEc:cnb:wpaper:2007/15

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Keywords: Macroeconomics; new Keynesian DSGE models; small open economy; monetary policy rules; regime change.;

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  1. Gianluca Benigno & Pierpaolo Benigno, 2003. "Price Stability in Open Economies," Review of Economic Studies, Oxford University Press, vol. 70(4), pages 743-764.
  2. Aoki, Kosuke, 2001. "Optimal monetary policy responses to relative-price changes," Journal of Monetary Economics, Elsevier, vol. 48(1), pages 55-80, August.
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