Expectations and the effects of monetary policy

Laurence Ball and Dean Croushore

No 01-12, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: This paper examines the predictive power of shifts in monetary policy, as measured by changes in the real federal funds rate, for output, inflation, and survey expectations of these variables. The authors find that policy shifts have larger effects on actual output than on expected output; thus policy predicts errors in output expectations, a violation of rational expectations. Policy shifts do not predict errors in inflation expectations. The authors explain these results with a model in which agents systematically underestimate the effects of policy on aggregate demand. This model helps to explain the real effects of policy.

Keywords: Monetary; policy (search for similar items in EconPapers)
Date: 2001
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Expectations and the Effects of Monetary Policy (2003)
Working Paper: Expectations and the effects of monetary policy (1998)
Working Paper: Expectations and the effects of monetary policy (1995)
Working Paper: Expectations and the Effects of Monetary Policy (1995)
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