Real and nominal effects of monetary shocks under time-varying disagreement

Vania Esady ()
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Vania Esady: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH

No 1007, Bank of England working papers from Bank of England

Abstract: How do varying degrees of information frictions affect the transmission mechanism of monetary policy? Using non‑linear methods, I empirically find that during heightened disagreement, monetary policy has a smaller effect on inflation, yet more influence over output. As a proxy for information frictions, I use real GDP nowcast disagreement across professional forecasters. Significant nowcast disagreement indicates when it is difficult to observe the current economic state, or a period of high information rigidities. I develop a tractable theoretical model that shows rationally inattentive price‑setters produce this result. Improved central bank communication that reduces disagreement among economic agents can mitigate output losses when implementing disinflationary monetary policies.

Keywords: Time-varying disagreement; monetary policy; state-dependent local projections; rational inattention (search for similar items in EconPapers)
JEL-codes: D83 E32 E52 E58 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2022-12-16
New Economics Papers: this item is included in nep-ban and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:1007

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