Monetary Policy across Inflation Regimes

Valeria Gargiulo (), Christian Matthes and Katerina Petrova
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Valeria Gargiulo: https://www.upf.edu/web/econ/phd-e-i/-/asset_publisher/y8aJCiW7qGsx/content/gargiulo-valeria/maximized

No 1083, Staff Reports from Federal Reserve Bank of New York

Abstract: Does the effect of monetary policy depend on the prevailing level of inflation? In order to answer this question, we construct a parsimonious nonlinear time series model that allows for inflation regimes. We find that the effects of monetary policy are markedly different when year-over-year inflation exceeds 5.5 percent. Below this threshold, changes in monetary policy have a short-lived effect on prices, but no effect on the unemployment rate, giving a potential explanation for the recent “soft landing” in the United States. Above this threshold, the effects of monetary policy surprises on both inflation and unemployment can be larger and longer lasting.

Keywords: monetary policy; shocks; inflation; regime-dependence; outliers; nonlinear time series models (search for similar items in EconPapers)
JEL-codes: C11 C12 C22 (search for similar items in EconPapers)
Pages: 41
Date: 2024-01-01
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mon
Note: Revised August 2024.
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Citations: View citations in EconPapers (2)

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DOI: 10.59576/sr.1083

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