Deconstructing the Art of Central Banking

Tamim Bayoumi and Silvia Sgherri

No 4675, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This Paper proposes a markedly different transmission from monetary policy to the macroeconomy, focusing on how policy changes nominal inertia in the Phillips curve. Using recent theoretical developments, we examine the properties of a small, estimated US monetary model distinguishing four monetary regimes since the late 1950s. We find that changes in monetary policy are linked to shifts in nominal inertia, and that these improvements in supply-side flexibility are indeed the main channel through which monetary policy lowers the volatility of inflation and, even more importantly, output.

Keywords: Monetary policy; inflation; Rational expectation models (search for similar items in EconPapers)
JEL-codes: E31 E32 (search for similar items in EconPapers)
Date: 2004-10
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (3)

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Working Paper: Deconstructing the Art of Central Banking (2004)
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