Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/172930
Authors: 
Melosi, Leonardo
Year of Publication: 
2016
Series/Report no.: 
Working Paper 2016-14
Abstract: 
We develop a dynamic general equilibrium model in which the policy rate signals the central bank's view about macroeconomic developments to price setters. The model is estimated with likelihood methods on a U.S. data set that includes the Survey of Professional Forecasters as a measure of price setters' inflation expectations. This model improves upon existing perfect information models in explaining why, in the data, inflation expectations respond with delays to monetary impulses and remain disanchored for years. In the 1970s, U.S. monetary policy is found to signal persistent inflationary shocks, explaining why inflation and inflation expectations were so persistently heightened. The signaling effects of monetary policy also explain why inflation expectations adjusted more sluggishly than inflation after the robust monetary tightening of the 1980s.
Subjects: 
disanchoring of inflation expectations
heterogeneous beliefs
endogenous signals
Bayesian VAR
Bayesian counterfactual analysis
Delphic effects of monetary policy
JEL: 
E52
C11
C52
D83
Document Type: 
Working Paper

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