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Author: Rhys Reginald Mendes
Publisher:
ISBN: 9780494580530
Category :
Languages : en
Pages : 242
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Book Description
This thesis examines two closely related issues: (1) the ability of imperfect information models to explain some aspects of business cycle dynamics, and (2) the interaction between central bank communications and monetary policy. These issues are related because central bank communications can only be studied in models with imperfect information.In chapter 1, I investigate the ability of a noisy rational expectations model to generate plausible macroeconomic dynamics. The model allows for imperfect, heterogeneous information, and signal extraction from endogenous variables. I find that imperfect information significantly improves the model's ability to generate persistent, hump-shaped responses to a transitory monetary policy shock. This is achieved without the need for mechanical frictions. In addition, the model generates realistic inflation forecast errors.Chapter 2 explores the relationship between central bank statements about future policy and the degree of commitment. I allow the central bank to make (possibly vague) statements about its expected future policy. I begin by assuming that the central bank adopts a loss function which internalizes the bygone costs of deviating from such a pre-announced policy action. The resulting policy is a convex combination of pure discretion and full commitment. As the precision of central bank statements increases, this policy converges to the full commitment policy. I then show that this type of commitment to internalize bygone costs is sustainable only for moderate degrees of precision.Chapter 3 studies the impact of central bank communications about the state of the economy. In particular, I examine the extent to which increased central bank transparency creates a meaningful trade-off between beneficially conveying fundamental information and adversely contaminating observed data with the central bank's opinion. This question is addressed in a variant of the model from chapter 1. In this environment, both the central bank and private agents learn about the state of the economy from observations of endogenous variables. By making the central bank learn from endogenous variables, I am able to study the impact of communications precision on the bank's signal extraction problem.
Author: Rhys Reginald Mendes
Publisher:
ISBN: 9780494580530
Category :
Languages : en
Pages : 242
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Book Description
This thesis examines two closely related issues: (1) the ability of imperfect information models to explain some aspects of business cycle dynamics, and (2) the interaction between central bank communications and monetary policy. These issues are related because central bank communications can only be studied in models with imperfect information.In chapter 1, I investigate the ability of a noisy rational expectations model to generate plausible macroeconomic dynamics. The model allows for imperfect, heterogeneous information, and signal extraction from endogenous variables. I find that imperfect information significantly improves the model's ability to generate persistent, hump-shaped responses to a transitory monetary policy shock. This is achieved without the need for mechanical frictions. In addition, the model generates realistic inflation forecast errors.Chapter 2 explores the relationship between central bank statements about future policy and the degree of commitment. I allow the central bank to make (possibly vague) statements about its expected future policy. I begin by assuming that the central bank adopts a loss function which internalizes the bygone costs of deviating from such a pre-announced policy action. The resulting policy is a convex combination of pure discretion and full commitment. As the precision of central bank statements increases, this policy converges to the full commitment policy. I then show that this type of commitment to internalize bygone costs is sustainable only for moderate degrees of precision.Chapter 3 studies the impact of central bank communications about the state of the economy. In particular, I examine the extent to which increased central bank transparency creates a meaningful trade-off between beneficially conveying fundamental information and adversely contaminating observed data with the central bank's opinion. This question is addressed in a variant of the model from chapter 1. In this environment, both the central bank and private agents learn about the state of the economy from observations of endogenous variables. By making the central bank learn from endogenous variables, I am able to study the impact of communications precision on the bank's signal extraction problem.
Author: Rhys R. Mendes
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Author: Mr.Martin Cihak
Publisher: International Monetary Fund
ISBN: 1451871104
Category : Business & Economics
Languages : en
Pages : 36
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Book Description
The paper presents a methodology for measuring the clarity of central bank communication, illustrating it with the case of the European Central Bank (ECB) in 1999-2007. The analysis identifies the ECB's written communication as clear about 95 percent of instances, which is comparable to, or even better than, other central banks for which a similar analysis is available. We also find that the additional information contained in the ECB's Monthly Bulletins helps to improve communication clarity compared to ECB's press releases. In particular, the Bulletins contain useful clarifying information on individual inflation factors and the overall forecast risk; in contrast, the bulletin's communication on monetary shocks has a negative, albeit small, impact on clarity.
Author: David G. Mayes
Publisher: Oxford Handbooks
ISBN: 0190626194
Category : Business & Economics
Languages : en
Pages : 809
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Book Description
"The Handbook reflects the state of the art in the theory and practice of central banking. It covers all the essential areas that have come under scrutiny since the global financial crisis of 2007-9"--
Author: Pär Österholm
Publisher: International Monetary Fund
ISBN:
Category : Business & Economics
Languages : en
Pages : 36
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Book Description
Much of the information communicated by central banks is noisy or imperfect. This paper considers the potential benefits and limitations of central bank communications in a model of imperfect knowledge and learning. It is shown that the value of communicating imperfect information is ambiguous. There is a risk that the central bank can distract the public; this means that the central bank may prefer to focus its communication policies on the information it knows most about. Indeed, conveying more certain information may improve the public's understanding to the extent that it "crowds out" a role for communicating imperfect information.
Author: Peter J. N. Sinclair
Publisher: Routledge
ISBN: 1135179778
Category : Business & Economics
Languages : en
Pages : 402
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Book Description
Inflation is regarded by the many as a menace that damages business and can only make life worse for households. Keeping it low depends critically on ensuring that firms and workers expect it to be low. So expectations of inflation are a key influence on national economic welfare. This collection pulls together a galaxy of world experts (including Roy Batchelor, Richard Curtin and Staffan Linden) on inflation expectations to debate different aspects of the issues involved. The main focus of the volume is on likely inflation developments. A number of factors have led practitioners and academic observers of monetary policy to place increasing emphasis recently on inflation expectations. One is the spread of inflation targeting, invented in New Zealand over 15 years ago, but now encompassing many important economies including Brazil, Canada, Israel and Great Britain. Even more significantly, the European Central Bank, the Bank of Japan and the United States Federal Bank are the leading members of another group of monetary institutions all considering or implementing moves in the same direction. A second is the large reduction in actual inflation that has been observed in most countries over the past decade or so. These considerations underscore the critical – and largely underrecognized - importance of inflation expectations. They emphasize the importance of the issues, and the great need for a volume that offers a clear, systematic treatment of them. This book, under the steely editorship of Peter Sinclair, should prove very important for policy makers and monetary economists alike.
Author: Stefano Eusepi
Publisher:
ISBN:
Category : Banks and banking, Central
Languages : en
Pages : 47
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Book Description
This paper analyzes the value of communication in the implementation of monetary policy. The central bank is uncertain about the current state of the economy. Households and firms are uncertain about the statistical properties of aggregate variables, including nominal interest rates, and must learn about their dynamics using historical data. Given these uncertainties, when the central bank implements optimal policy, the Taylor principle is not sufficient for macroeconomic stability: for reasonable parameterizations self-fulfilling expectations are possible. To mitigate this instability, three communication strategies are contemplated: i) communicating the precise details of the monetary policy -- that is, the variables and coefficients; ii) communicating only the variables on which monetary policy decisions are conditioned; and iii) communicating the inflation target. The first two strategies restore the Taylor principle as a sufficient condition for stabilizing expectations. In contrast, in economies with persistent shocks, communicating the inflation target fails to protect against expectations driven fluctuations. These results underscore the importance of communicating the systematic component of monetary policy strategy: announcing an inflation target is not enough to stabilize expectations -- one must also announce how this target will be achieved.
Author: Mr.Pau Rabanal
Publisher: International Monetary Fund
ISBN: 1451875657
Category : Business & Economics
Languages : en
Pages : 68
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Book Description
Our answer: Not so well. We reached that conclusion after reviewing recent research on the role of technology as a source of economic fluctuations. The bulk of the evidence suggests a limited role for aggregate technology shocks, pointing instead to demand factors as the main force behind the strong positive comovement between output and labor input measures.
Author: Board of Governors of the Federal Reserve System
Publisher:
ISBN: 9780894991967
Category : Banks and Banking
Languages : en
Pages : 0
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Book Description
Provides an in-depth overview of the Federal Reserve System, including information about monetary policy and the economy, the Federal Reserve in the international sphere, supervision and regulation, consumer and community affairs and services offered by Reserve Banks. Contains several appendixes, including a brief explanation of Federal Reserve regulations, a glossary of terms, and a list of additional publications.
Author: Stefano Eusepi
Publisher:
ISBN:
Category :
Languages : en
Pages : 49
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Book Description
This paper analyzes the value of communication in the implementation of monetary policy. The central bank is uncertain about the current state of the economy. Households and firms are uncertain about the statistical properties of aggregate variables, including nominal interest rates, and must learn about their dynamics using historical data. Given these uncertainties, when the central bank implements optimal policy, the Taylor principle is not sufficient for macroeconomic stability: for reasonable parameterizations self-fulfilling expectations are possible. To mitigate this instability, three communication strategies are contemplated: i) communicating the precise details of the monetary policy -- that is, the variables and coefficients; ii) communicating only the variables on which monetary policy decisions are conditioned; and iii) communicating the inflation target. The first two strategies restore the Taylor principle as a sufficient condition for stabilizing expectations. In contrast, in economies with persistent shocks, communicating the inflation target fails to protect against expectations driven fluctuations. These results underscore the importance of communicating the systematic component of monetary policy strategy: announcing an inflation target is not enough to stabilize expectations -- one must also announce how this target will be achieved.
