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The Impact of Alternative Transitions to Normalized Monetary Policy

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  • Serguei Maliar

    (Santa Clara University)

  • John Taylor

    (Stanford University)

  • Lilia Maliar

    (Stanford University)

Abstract

We investigate the effects of a regime shift in monetary policy on macroeconomic variables and welfare in the context of a model with staggered price setting and a Taylor rule. The studied economy is nonstationary because the parameters in the Taylor rule may change over time. We analyze how such time-dependent monetary policy can affect economy. In particular, the EFP allows us to study questions like "Should the Fed normalize policy now or later?"; "Should the Fed normalize policy gradually or all at once?"; and , "Should the Fed announce the regime shift publicly in advance?". We also assess the effects of anchoring inflation expectations of economic agents. Finally, we consider the effects of the zero lower bound (ZLB) on nominal interest rates, and we analyze and compare different transitions out of the ZLB

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  • Serguei Maliar & John Taylor & Lilia Maliar, 2016. "The Impact of Alternative Transitions to Normalized Monetary Policy," 2016 Meeting Papers 794, Society for Economic Dynamics.
  • Handle: RePEc:red:sed016:794
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