Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5099868 | Journal of Economic Dynamics and Control | 2015 | 31 Pages |
Abstract
An empirical model that allows for shifts in the inflation target and imperfect policy credibility is estimated. Imperfect credibility, defined by differences between the perceived and actual inflation target, obtains because private agents cannot correctly distinguish between permanent target shocks and transitory funds rate shocks. Learning affects responses to structural shocks. Important features include the absence of a price puzzle, permanent nominal effects of aggregate supply shocks due to partial policy accommodation, and the ability to examine responses to a permanent target change and expectations shocks. Perceptions of permanent target shocks explain sizable movements in bond yields and inflation.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Sharon Kozicki, P.A. Tinsley,