Endogenous monetary policy regime change
Troy Davig and
Eric Leeper
No RWP 06-11, Research Working Paper from Federal Reserve Bank of Kansas City
Abstract:
This paper makes changes in monetary policy rules (or regimes) endogenous. Changes are triggered when certain endogenous variables cross specified thresholds. Rational expectations equilibria are examined in three models of threshold switching to illustrate that (i) expectations formation effects generated by the possibility of regime change can be quantitatively important; (ii) symmetric shocks can have asymmetric effects; (iii) endogenous switching is a natural way to formally model preemptive policy actions. In a conventional calibrated model, preemptive policy shifts agents? expectations, enhancing the ability of policy to offset demand shocks; this yields a quantitatively significant ?preemption dividend.?
Keywords: Monetary policy; Taylor's rule (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (15)
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https://www.kansascityfed.org/documents/5350/pdf-RWP06-11.pdf (application/pdf)
Related works:
Chapter: Endogenous Monetary Policy Regime Change (2008) 
Working Paper: Endogenous Monetary Policy Regime Change (2006) 
Working Paper: Endogenous Monetary Policy Regime Change (2006) 
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