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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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| Udgivet i: | MAGKS - Joint Discussion Paper Series in Economics (Band 26-2016b) |
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| Hovedforfatter: | |
| Format: | Artikel |
| Sprog: | engelsk |
| Udgivet: |
Philipps-Universität Marburg
2016
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| Fag: | |
| Online adgang: | PDF-Volltext |
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| Summary: | 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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| Fysisk beskrivelse: | 10 Seiten |
| ISSN: | 1867-3678 |
| DOI: | 10.17192/es2024.0475 |