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Expectations, and Credibility in a Model of Monetary Policy

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  • John D. Stiver

    (University of Connecticut)

Abstract

Recent monetary history has been characterized by monetary authorities which have been, alternatively hard and soft on inflation. In a vintage capital framework, investment decisions are not easily reversed. Therefore, expectations of policy as well as current policy are important to the investment decision. Here, a vintage capital model is used to assess the value of central bank credibility for a policy change. Policy in this model is assumed to be private information of the central banker. Agents learn about that policy which to study the ensuing transitional dynamics following a change in monetary policy regime.

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Bibliographic Info

Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2003-34.

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Length: 45 pages
Date of creation: Jun 2003
Date of revision:
Handle: RePEc:uct:uconnp:2003-34

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  1. Lawrence J. Christiano & Martin Eichenbaum, 1992. "Liquidity effects, monetary policy and the business cycle," Working Paper Series, Macroeconomic Issues 92-15, Federal Reserve Bank of Chicago.
  2. Michael Dotsey & Peter Ireland, 1993. "Liquidity effects and transactions technologies," Working Paper 93-01, Federal Reserve Bank of Richmond.
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  4. Robert J. Barro & David B. Gordon, 1984. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc.
  5. John Haltiwanger & Russell Cooper & Laura Power, 1999. "Machine Replacement and the Business Cycle: Lumps and Bumps," American Economic Review, American Economic Association, vol. 89(4), pages 921-946, September.
  6. Backus, David & Driffill, John, 1985. "Inflation and Reputation," American Economic Review, American Economic Association, vol. 75(3), pages 530-38, June.
  7. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-21, September.
  8. Jeremy Greenwood & Zvi Hercowitz & Per Krusell, 1992. "Macroeconomic implications of investment-specific technological change," Discussion Paper / Institute for Empirical Macroeconomics 76, Federal Reserve Bank of Minneapolis.
  9. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-17, June.
  10. Barro, Robert J., 1978. "Unanticipated Money, Output, and the Price Level in the United States," Scholarly Articles 3450988, Harvard University Department of Economics.
  11. Lucas, Robert Jr., 1990. "Liquidity and interest rates," Journal of Economic Theory, Elsevier, vol. 50(2), pages 237-264, April.
  12. Lawrence J. Christiano & Martin Eichenbaum, 1991. "Identification and the Liquidity Effect of a Monetary Policy Shock," NBER Working Papers 3920, National Bureau of Economic Research, Inc.
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Cited by:
  1. Eyal Argov & David Rose & Philippe D Karam & Natan P. Epstein & Douglas Laxton, 2007. "Endogenous Monetary Policy Credibility in a Small Macro Model of Israel," IMF Working Papers 07/207, International Monetary Fund.

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