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Monetary policy announcements and sacrifice ratios

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  • Ambrocio, Gene
  • Haavio, Markus
  • McClung, Nigel

Abstract

We show that sacrifice ratios associated with announcements of the most likely course of monetary policy are lower when the implementation date is further out into the future in the basic New Keynesian framework. This is not due to forward guidance puzzle effects and holds even when agents' expectations feature cognitive discounting. Nevertheless, the rate at which sacrifice ratios fall with the implementation horizon is attenuated by the intensity of cognitive discounting. We also show that our results also hold in a model with additional real and nominal rigidities. These results indicate that telegraphing the most likely course of action for monetary policy attenuates the effects on output relative to inflation.

Suggested Citation

  • Ambrocio, Gene & Haavio, Markus & McClung, Nigel, 2024. "Monetary policy announcements and sacrifice ratios," Bank of Finland Research Discussion Papers 12/2024, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:306368
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    References listed on IDEAS

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    More about this item

    Keywords

    monetary policy announcements; sacrifice ratio; cognitive discounting;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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