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News Shocks, Price Levels, and Monetary Policy

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  • Ryo Jinnai

Abstract

This paper presents a model in which improvement in the future TFP is, on impact, associated with increases in consumption, stock prices, and real wages, and decreases in GDP, investment, hours worked, and inflation. These predictions are consistent with empirical findings of Barsky and Sims. The model features research and development, sticky nominal wages, and the monetary authority responding to inflation and consumption growth. The proposed policy rule fits the actual Federal Funds rate as closely as an alternative policy rule responding to inflation and GDP growth, and is better at reducing distortion due to the nominal wage stickiness.

Suggested Citation

  • Ryo Jinnai, 2011. "News Shocks, Price Levels, and Monetary Policy," Global COE Hi-Stat Discussion Paper Series gd10-173, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hst:ghsdps:gd10-173
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    File URL: http://gcoe.ier.hit-u.ac.jp/research/discussion/2008/pdf/gd10-173.pdf
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    References listed on IDEAS

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    Cited by:

    1. Jinnai, Ryo, 2013. "News shocks and inflation," Economics Letters, Elsevier, vol. 119(2), pages 176-179.

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    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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