The Macroeconomic Effects of Unstable Monetary Policy Objectives
Ricardo Nunes () and
Davide Debortoli ()
No 1271, 2010 Meeting Papers from Society for Economic Dynamics
Policymakers take into account the possibility of a regime switch and counteract the externalities generated by the alternative regimes. The resulting behavior of inflation and output differs, both qualitatively and quantitatively, from what obtained in regime switches models with simple policy rules. From an empirical point of view, modeling the policymakers' decision process imposes additional restrictions, not necessarily satisifed by models with simple policy rules. Some positive and normative implications of policy regime switches are then revisited.
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