Imperfect Knowledge And Monetary Policy
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Imperfect Knowledge And Monetary Policy
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Author : Vítor Gaspar
language : en
Publisher: Cambridge University Press
Release Date : 2006-02-16
Imperfect Knowledge And Monetary Policy written by Vítor Gaspar and has been published by Cambridge University Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006-02-16 with Business & Economics categories.
Based on lectures given as part of The Stone Lectures in Economics, this book discusses the problem of formulating monetary policy in practice, under the uncertain circumstances which characterize the real world. The first lecture highlights the limitations of decision rules suggested by the academic literature and recommends an approach involving, first, a firm reliance on the few fundamental and robust results of monetary economics and, secondly, a pragmatic attitude to policy implementation, taking into consideration lessons from central banking experience. The second lecture revisits Milton Friedman's questions about the effects of active stabilization policies on business cycle fluctuations. It explores the implications of a simple model where the policy maker has imperfect knowledge about potential output and the private sector forms expectations according to adaptive learning. This lecture shows that imperfect knowledge limits the scope for active stabilization policy and strengthens the case for conservatism.
Imperfect Knowledge And Monetary Policy
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Author : Vítor Gaspar
language : en
Publisher: Cambridge University Press
Release Date : 2006-02-16
Imperfect Knowledge And Monetary Policy written by Vítor Gaspar and has been published by Cambridge University Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006-02-16 with Business & Economics categories.
Based on lectures given as part of The Stone Lectures in Economics, this book discusses the problem of formulating monetary policy in practice, under the uncertain circumstances which characterize the real world. How should central banks set monetary policy? In which way should they take uncertainty into account when designing a monetary policy strategy? Should they respond to shocks aggressively or cautiously? These questions are discussed both with reference to the experience of the Bundesbank and of the European Central Bank and in relation to a simple stylized economic model.
Monetary Policy With Imperfect Knowledge
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Author : Athanasios Orphanides
language : en
Publisher:
Release Date : 2005
Monetary Policy With Imperfect Knowledge written by Athanasios Orphanides and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005 with Monetary policy categories.
We examine the performance and robustness of monetary policy rules when the central bank and the public have imperfect knowledge of the economy and continuously update their estimates of model parameters. We find that versions of the Taylor rule calibrated to perform well under rational expectations with perfect knowledge perform very poorly when agents are learning and the central bank faces uncertainty regarding natural rates. In contrast, difference rules, in which the change in the interest rate is determined by the inflation rate and the change in the unemployment rate, perform well when knowledge is both perfect and imperfect.
Robust Monetary Policy With Imperfect Knowledge
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Author : Athanasios Orphanides
language : en
Publisher:
Release Date : 2007
Robust Monetary Policy With Imperfect Knowledge written by Athanasios Orphanides and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007 with Monetary policy categories.
We examine the performance and robustness properties of monetary policy rules in an estimated macroeconomic model in which the economy undergoes structural change andwhere private agents and the central bank possess imperfect knowledge about the true structure of the economy. Policymakers follow an interest rate rule aiming to maintain price stability and to minimize fluctuations of unemployment around its natural rate but areuncertain about the economy's natural rates of interest and unemployment and how private agents form expectations. In particular, we consider two models of expectations formation :rational expectations and learning. We show that in this environment the ability to stabilize the real side of the economy is significantly reduced relative to an economy under rational expectations with perfect knowledge. Furthermore, policies that would be optimal under perfect knowledge can perform very poorly if knowledge is imperfect. Efficient policies that take account of private learning and misperceptions of natural rates call for greater policy inertia, a more aggressive response to inflation, and a smaller response to the perceived unemployment gap than would be optimal if everyone had perfect knowledge of the economy. We show that such policies are quite robust to potential misspecification of private sector learning and the magnitude of variation in natural rates.
Imperfect Knowledge Inflation Expectations And Monetary Policy
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Author : Athanasios Orphanides
language : en
Publisher:
Release Date : 2002
Imperfect Knowledge Inflation Expectations And Monetary Policy written by Athanasios Orphanides and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2002 with Monetary policy categories.
This paper investigates the role that imperfect knowledge about the structure of the economy plays in the formation of expectations, macroeconomic dynamics, and the efficient formulation of monetary policy. Economic agents rely on an adaptive learning technology to form expectations and to update continuously their beliefs regarding the dynamic structure of the economy based on incoming data. The process of perpetual learning introduces an additional layer of dynamic interaction between monetary policy and economic outcomes. We find that policies that would be efficient under rational expectations can perform poorly when knowledge is imperfect. In particular, policies that fail to maintain tight control over inflation are prone to episodes in which the public's expectations of inflation become uncoupled from the policy objective and stagflation results, in a pattern similar to that experienced in the United States during the 1970s. Our results highlight the value of effective communication of a central bank's inflation objective and of continued vigilance against inflation in anchoring inflation expectations and fostering macroeconomic stability.
Long Term Debt Pricing And Monetary Policy Transmission Under Imperfect Knowledge
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Author : Stefano Eusepi
language : en
Publisher:
Release Date : 2012
Long Term Debt Pricing And Monetary Policy Transmission Under Imperfect Knowledge written by Stefano Eusepi and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012 with Interest rates categories.
Transparency And Monetary Policy With Imperfect Common Knowledge
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Author : Mr.Mauro Roca
language : en
Publisher: International Monetary Fund
Release Date : 2010-04-01
Transparency And Monetary Policy With Imperfect Common Knowledge written by Mr.Mauro Roca and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010-04-01 with Business & Economics categories.
Is it desirable that central banks be more transparent in the communication of sensible information when agents have diverse private information? In practice, there exists some consensus about the benefits of acting in this way. However, other studies warn that increasing the precision of public information may raise the volatility of some aggregate variables - in particular, the price level - due to the disproportionate influence that it exerts on agents' decisions, and that this, in turn, will have negative effects on welfare. This paper studies the welfare effects of varying levels of transparency in a model of price-setting under monopolistic competition and imperfect common knowledge. Our results indicate that more precise public information never leads to a reduction of welfare in this framework. We find that the beneficial effects of decreased imperfect common knowledge due to a more precise common signal always compensates the potential rise in aggregate volatility. Moreover, we show that, in contrast to what has previously been assumed, the variability of the aggregate price level has no detrimental welfare effects in this model.
Imperfect Knowledge Economics
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Author : Roman Frydman
language : en
Publisher: Princeton University Press
Release Date : 2023-09-26
Imperfect Knowledge Economics written by Roman Frydman and has been published by Princeton University Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2023-09-26 with Business & Economics categories.
Posing a major challenge to economic orthodoxy, Imperfect Knowledge Economics asserts that exact models of purposeful human behavior are beyond the reach of economic analysis. Roman Frydman and Michael Goldberg argue that the longstanding empirical failures of conventional economic models stem from their futile efforts to make exact predictions about the consequences of rational, self-interested behavior. Such predictions, based on mechanistic models of human behavior, disregard the importance of individual creativity and unforeseeable sociopolitical change. Scientific though these explanations may appear, they usually fail to predict how markets behave. And, the authors contend, recent behavioral models of the market are no less mechanistic than their conventional counterparts: they aim to generate exact predictions of "irrational" human behavior. Frydman and Goldberg offer a long-overdue response to the shortcomings of conventional economic models. Drawing attention to the inherent limits of economists' knowledge, they introduce a new approach to economic analysis: Imperfect Knowledge Economics (IKE). IKE rejects exact quantitative predictions of individual decisions and market outcomes in favor of mathematical models that generate only qualitative predictions of economic change. Using the foreign exchange market as a testing ground for IKE, this book sheds new light on exchange-rate and risk-premium movements, which have confounded conventional models for decades. Offering a fresh way to think about markets and representing a potential turning point in economics, Imperfect Knowledge Economics will be essential reading for economists, policymakers, and professional investors.
Inflation Targeting Under Imperfect Knowledge
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Author : Athanasios Orphanides
language : en
Publisher:
Release Date : 2006
Inflation Targeting Under Imperfect Knowledge written by Athanasios Orphanides and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006 with Anti-inflationary policies categories.
Imperfect Central Bank Communication Information Versus Distraction
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Author : Pär Österholm
language : en
Publisher: International Monetary Fund
Release Date : 2008-03
Imperfect Central Bank Communication Information Versus Distraction written by Pär Österholm and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008-03 with Business & Economics categories.
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.