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Deconstructing the Art of Central Banking

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  • Tamim Bayoumi
  • Silvia Sgherri

Abstract

This paper proposes a markedly different transmission mechanism from monetary policy to the macroeconomy, focusing on how policy changes nominal inertia in the Phillips curve. Using recent theoretical developments, we examine the properties of a small, estimated U.S. monetary model distinguishing four monetary regimes employed since the late 1950s. We find that changes in monetary policy are linked to shifts in nominal inertia, and that these improvements in supply-side flexibility are indeed the main channel through which monetary policy lowers the volatility of inflation and, even more importantly, output.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/195.

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Length: 36
Date of creation: 01 Oct 2004
Date of revision:
Handle: RePEc:imf:imfwpa:04/195

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Keywords: Economic models;

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Citations

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Cited by:
  1. Tamim Bayoumi & Silvia Sgherri, 2004. "Monetary Magic? How the Fed Improved the Flexibility of the U.S. Economy," IMF Working Papers 04/24, International Monetary Fund.
  2. Silvia Sgherri, 2005. "Explicit and Implicit Targets in Open Economies," IMF Working Papers 05/176, International Monetary Fund.
  3. Otmar Issing, 2005. "Speeding up European Reform: A Master Plan for the Lisbon Process - The Implementation of the Lisbon Agenda: A political priority," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 6(2), pages 31-35, 08.

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