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Expectations and the effects of monetary policy

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  • Laurence Ball
  • Dean Croushore

Abstract

This paper examines the predictive power of shifts in monetary policy, as measured by changes in the real federal funds rate, for output, inflation, and survey expectations of these variables. The authors find that policy shifts have larger effects on actual output than on expected output, suggesting that agents underestimate the effects of policy on aggregate demand. Their results help explain the real effects of monetary policy, and they provide negative evidence on the rationality of expectations.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 98-13.

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Date of creation: 1998
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Handle: RePEc:fip:fedpwp:98-13

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Keywords: Monetary policy ; Rational expectations (Economic theory);

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References

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