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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 federal funds rate, for output, inflation, and survey expectations of these variables. We 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. Our results help to explain the real effects of monetary policy, and they provide a strong rejection of the rational expectations hypothesis.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5344.

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Date of creation: Nov 1995
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Publication status: published as Ball, Laurence and Dean Croushore. "Expectations And The Effects Of Monetary Policy," Journal of Money, Credit and Banking, 2003, v35(4,Aug), 473-484.
Handle: RePEc:nbr:nberwo:5344

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