The Effects of Anticipated Future Change in the Monetary Policy Regime
Czech National Bank; Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute)
Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute)
December 7, 2007
In this paper, we investigate the effects of an anticipated future change in monetary policy regime in small open economies targeting either inflation or the exchange rate. The announcement of a future change in the monetary policy regime triggers an immediate change in the behavior of households and firms. As a result the economy starts to behave differently even though the current monetary policy rule remains the same for the whole period before the monetary policy regime change. Thus, the behavior of economic agents over the transitory period to the new monetary policy rule depends not only on the current monetary policy rule in this transitory period, but also on the anticipated future monetary policy regime. Given a common future monetary policy regime, the behavior of inflation and exchange rate targeting economies converges after the announcement.
Number of Pages in PDF File: 61
Keywords: macroeconomics, new Keynesian DSGE models, small open economy
JEL Classification: E17, E31, E52, E58, E61, F02, F41
Date posted: June 7, 2011
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