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Monetary Misperceptions, Output and Inflation Dynamics

  • Collard, Fabrice
  • Dellas, Harris

We revisit the contribution of misperceived money to business cycles, and in particular to the inertial dynamics of inflation following a monetary policy shock. We establish three things. First, the difference between preliminary and revised money data captures monetary misperceptions well. Second, misperceived money is quantitatively substantial and also matters significantly for economic activity. And third, imperfect information about monetary aggregates can help the standard NK model exhibit inertial inflation dynamics.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7644.

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Date of creation: Jan 2010
Date of revision:
Handle: RePEc:cpr:ceprdp:7644
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  1. Boschen, John F. & Grossman, Herschel I., 1982. "Tests of equilibrium macroeconomics using contemporaneous monetary data," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 309-333.
  2. Olivier Coibion & Yuriy Gorodnichenko, 2011. "Strategic Interaction among Heterogeneous Price-Setters in an Estimated DSGE Model," The Review of Economics and Statistics, MIT Press, vol. 93(3), pages 920-940, August.
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  9. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
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  12. King, Robert G., 1981. "Monetary information and monetary neutrality," Journal of Monetary Economics, Elsevier, vol. 7(2), pages 195-206.
  13. Frank Smets & Raf Wouters, 2007. "Shocks and Frictions in US Business Cycles : a Bayesian DSGE Approach," Working Paper Research 109, National Bank of Belgium.
  14. Svensson, Lars E. O. & Woodford, Michael, 2000. "Indicator variables for optimal policy," Working Paper Series 0012, European Central Bank.
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  16. Robert J. Barro & Mark Rush, 1980. "Unanticipated Money and Economic Activity," NBER Chapters, in: Rational Expectations and Economic Policy, pages 23-73 National Bureau of Economic Research, Inc.
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  18. Stanley Fischer, 1980. "Rational Expectations and Economic Policy," NBER Books, National Bureau of Economic Research, Inc, number fisc80-1, July.
  19. Dellas, Harris, 2006. "Monetary Shocks and Inflation Dynamics in the New Keynesian Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(2), pages 543-551, March.
  20. Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 221-235, April.
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