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The Effects of Anticipated Future Change in the Monetary Policy Regime

Juraj Antal and František Brázdik

Working Papers from Czech National Bank

Abstract: In this paper, we investigate the effects of an anticipated future change in monetary policy regime in small open economies targeting either inflation or the exchange rate. The announcement of a future change in the monetary policy regime triggers an immediate change in the behavior of households and firms. As a result the economy starts to behave differently even though the current monetary policy rule remains the same for the whole period before the monetary policy regime change. Thus, the behavior of economic agents over the transitory period to the new monetary policy rule depends not only on the current monetary policy rule in this transitory period, but also on the anticipated future monetary policy regime. Given a common future monetary policy regime, the behavior of inflation and exchange rate targeting economies converges after the announcement.

Keywords: Macroeconomics; new Keynesian DSGE models; small open economy; monetary policy rules; regime change. (search for similar items in EconPapers)
JEL-codes: E17 E31 E52 E58 E61 F02 F41 (search for similar items in EconPapers)
Date: 2007-12
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
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Persistent link: https://EconPapers.repec.org/RePEc:cnb:wpaper:2007/15

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