Disagreement and monetary policy
Mathias Hoffmann () and
No 29/2017, Discussion Papers from Deutsche Bundesbank
Time-variation in disagreement about inflation expectations is a stylized fact in surveys, but little is known on how disagreement interacts with the efficacy of monetary policy. This paper fills this gap in providing theoretical predictions of monetary policy shocks for different levels of disagreement and testing these empirically. When disagreement is high, a dispersed information New Keynesian model predicts that a contractionary monetary policy shock leads to a short-run rise in inflation and inflation expectations, whereas both decline when disagreement is low. Estimating a smooth-transition model on U.S. data shows significantly different responses in inflation and inflation expectations consistent with theory.
Keywords: disagreement; dispersed information; disanchoring of inflation expectations; monetary policy transmission; state-dependent effects of monetary policy; local projections (search for similar items in EconPapers)
JEL-codes: C52 D83 E31 E32 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Working Paper: Disagreement and Monetary Policy (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:292017
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