Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/214958 
Authors: 
Year of Publication: 
2019
Series/Report no.: 
CESifo Working Paper No. 7956
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper investigates the heterogeneity of monetary policy transmission under time-varying disagreement regimes using a threshold VAR. Empirically, I establish that during times of high disagreement, prices respond more sluggishly in response to monetary shocks. These stickier prices cause a flatter Phillips curve, leading to the empirical result that monetary policy has stronger real (output) effects in high disagreement periods. I develop a tractable theoretical model that show rationally inattentive price-setters produce this result. The model also links disagreement and uncertainty – two fundamentally different concepts, and bridges the results of this paper to the literature on state-dependent monetary transmission. The main result highlights a role for improved central bank communications that reduce disagreement among economic agents, which lessens output falls when implementing disinflationary monetary policies.
Subjects: 
time-varying disagreement
monetary policy
threshold VAR
rational inattention
JEL: 
E32
E52
E58
D83
Document Type: 
Working Paper
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