EconPapers    
Economics at your fingertips  
 

Monetary Policy, Endogenous Inattention, and the Volatility Trade-off

William Branch, John Carlson (), George Evans and Bruce McGough ()

No 106, 2006 Meeting Papers from Society for Economic Dynamics

Abstract: This paper addresses the output-price volatility puzzle by studying the interaction of optimal monetary policy and agents' beliefs. We assume that agents choose their information acquisition rate by minimizing a loss function that depends on expected forecast errors and information costs. Endogenous inattention is a Nash equilibrium in the information processing rate. Although a decline of policy activism directly increases output volatility, it indirectly anchors expectations, which decreases output volatility. If the indirect effect dominates then the usual trade-off between output and price volatility breaks down. This provides a potential explanation for the `Great Moderation' that began in the 1980's

Keywords: optimal policy; expectations; adaptive learning (search for similar items in EconPapers)
JEL-codes: D83 E31 E52 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.red-files-public.s3.amazonaws.com/meetpapers/2006/paper_106.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
Journal Article: Monetary Policy, Endogenous Inattention and the Volatility Trade-off (2009)
Journal Article: Monetary Policy, Endogenous Inattention and the Volatility Trade‐off (2009) Downloads
Working Paper: Monetary Policy, Endogenous Inattention, and the Volatility Trade-off (2007) Downloads
Working Paper: Monetary policy, endogenous inattention, and the volatility trade-off (2004) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed006:106

Access Statistics for this paper

More papers in 2006 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().

 
Page updated 2025-03-23
Handle: RePEc:red:sed006:106