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CFS Working Paper Series, Universität Frankfurt a. M. >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/10419/25560
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| Title: | | Central bank misperceptions and the role of money in interest rate rules  |
| Authors: | | Beck, Günter W. Wieland, Volker |
| Issue Date: | | 2008 |
| Series/Report no.: | | CFS Working Paper 2008/25 |
| Abstract: | | Research with Keynesian-style models has emphasized the importance of the output gap for policies aimed at controlling inflation while declaring monetary aggregates largely irrelevant. Critics, however, have argued that these models need to be modified to account for observed money growth and inflation trends, and that monetary trends may serve as a useful cross-check for monetary policy. We identify an important source of monetary trends in form of persistent central bank misperceptions regarding potential output. Simulations with historical output gap estimates indicate that such misperceptions may induce persistent errors in monetary policy and sustained trends in money growth and inflation. If interest rate prescriptions derived from Keynesian-style models are augmented with a cross-check against money-based estimates of trend inflation, inflation control is improved substantially. |
| Subjects: | | Taylor Rules Money Quantity Theory Output Gap Uncertainty Monetary Policy Under Uncertainty |
| JEL: | | E32 E41 E43 E52 E58 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CFS Working Paper Series, Universität Frankfurt a. M.
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