Work

Endogenous Monetary Policy Regime Change

Year: 2006

Type: report

Abstract: This paper makes changes in monetary policy rules (or regimes) endogenous.Changes are triggered when certain endogenous variables cross specified thresholds.Rational expectations equilibria are examined in three models of threshold switching to illustrate that (i) expectations formation effects generated by the possibility of regime change can be quantitatively important; (ii) symmetric shocks can have asymmetric effects; (iii) endogenous switching is a natural way to formally model preemptive policy actions.In a conventional calibrated model, preemptive policy shifts agents' expectations, enhancing the ability of policy to offset demand shocks; this yields a quantitatively significant "preemption dividend."

Source: National Bureau of Economic Research

DOI: 10.3386/w12405

Authors: Troy Davig, Eric Leeper

Institutions: National Bureau of Economic Research, Indiana University Bloomington, Indiana University, Federal Reserve Bank of Kansas City

Language: English

Topic: Monetary Policy and Economic Impact

Subfield: General Economics, Econometrics and Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

Funder: National Science Foundation

Award: Monetary and Fiscal Policy Switching: Theory and Empirics

OpenAlex ID: W2102604341

Cites: 66

Cited by: 31

Related to: 10