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“Talking Down Monetary Policy” – A Note
There is a recent debate about whether monetary policy is no longer ef- fective in stimulating demand, a concern often voiced in the euro area. As a response, the ECB warns against \talking down monetary policy" (ECB Vice-President Vitor Constancio, 2016). This note uses a textbook model of...
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| Publicat a: | MAGKS - Joint Discussion Paper Series in Economics (Band 26-2016b) |
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| Autor principal: | |
| Format: | Article |
| Idioma: | anglès |
| Publicat: |
Philipps-Universität Marburg
2016
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| Matèries: | |
| Accés en línia: | PDF a text complet |
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| Sumari: | There is a recent debate about whether monetary policy is no longer ef-
fective in stimulating demand, a concern often voiced in the euro area. As
a response, the ECB warns against \talking down monetary policy" (ECB
Vice-President Vitor Constancio, 2016). This note uses a textbook model of optimal monetary policy to study a situation in which the public misperceives
the interest rate elasticity of aggregate demand, which reflects policy effectiveness. We show that as a result of underestimating policy effectiveness demand shocks can no longer be stabilized perfectly, thus resulting in ineffcient inflation and output dynamics. In the presence of misperceptions, a negative demand shocks leads to a prolonged period of negative in
ation rates. |
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| Descripció física: | 10 Seiten |
| ISSN: | 1867-3678 |
| DOI: | 10.17192/es2024.0475 |