Monetary policy announcements and sacrifice ratios

Gene Ambrocio, Markus Haavio and Nigel McClung

No 12/2024, Bank of Finland Research Discussion Papers from Bank of Finland

Abstract: We show that sacrifice ratios associated with announcements of the most likely course of monetary policy are lower when the implementation date is further out into the future in the basic New Keynesian framework. This is not due to forward guidance puzzle effects and holds even when agents' expectations feature cognitive discounting. Nevertheless, the rate at which sacrifice ratios fall with the implementation horizon is attenuated by the intensity of cognitive discounting. We also show that our results also hold in a model with additional real and nominal rigidities. These results indicate that telegraphing the most likely course of action for monetary policy attenuates the effects on output relative to inflation.

Keywords: monetary policy announcements; sacrifice ratio; cognitive discounting (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofrdp:306368

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