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Signaling effects of monetary policy

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  • Leonardo Melosi

Abstract

We develop a DSGE model in which the policy rate signals the central bank's view about macroeconomic developments to incompletely informed price setters. The model is estimated with likelihood methods on a U.S. data set including the Survey of Professional Forecasters as a measure of price setters' expectations. The signaling effects of monetary policy are found to be empirically important and dampen the effects of monetary disturbances on inflation. While the signaling effects enhance the Federal Reserve's ability to stabilize the economy in the face of demand shocks, they play a small role in stabilizing the economy after technology shocks.

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Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-2012-05.

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Date of creation: 2012
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Handle: RePEc:fip:fedhwp:wp-2012-05

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Keywords: Monetary policy ; Federal Reserve System ; Technology - Economic aspects;

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Signaling Effects of Monetary Policy
    by Christian Zimmermann in NEP-DGE blog on 2013-07-19 00:25:50
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Cited by:
  1. Francesco Bianchi & Leonardo Melosi, 2013. "Dormant Shocks and Fiscal Virtue," PIER Working Paper Archive 13-032, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  2. Francesco Bianchi & Leonardo Melosi, 2012. "Modeling the Evolution of Expectations and Uncertainty in General Equilibrium," PIER Working Paper Archive 13-042, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  3. Bianchi, Francesco & Melosi, Leonardo, 2014. "Constrained Discretion and Central Bank Transparency," CEPR Discussion Papers 9955, C.E.P.R. Discussion Papers.
  4. Kinda Hachem & Jing Cynthia Wu, 2014. "Inflation Announcements and Social Dynamics," NBER Working Papers 20161, National Bureau of Economic Research, Inc.
  5. Olivier Coibion & Yuriy Gorodnichenko, 2011. "Why Are Target Interest Rate Changes So Persistent?," NBER Working Papers 16707, National Bureau of Economic Research, Inc.

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