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The Effects of Anticipated Future Change in the Monetary Policy Regime

61 Pages Posted: 7 Jun 2011  

František Brázdik

Czech National Bank; Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute)

Juraj Antal

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute)

Date Written: December 7, 2007

Abstract

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.

Keywords: macroeconomics, new Keynesian DSGE models, small open economy

JEL Classification: E17, E31, E52, E58, E61, F02, F41

Suggested Citation

Brázdik, František and Antal, Juraj, The Effects of Anticipated Future Change in the Monetary Policy Regime (December 7, 2007). Available at SSRN: https://ssrn.com/abstract=1859328 or http://dx.doi.org/10.2139/ssrn.1859328

František Brázdik (Contact Author)

Czech National Bank ( email )

Na Prikope 28
CZ-11503 Praha 1
Czech Republic

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )

P.O. Box 882
7 Politickych veznu
Prague 1, 111 21
Czech Republic

HOME PAGE: http://www.cerge-ei.cz

Juraj Antal

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )

P.O. Box 882
7 Politickych veznu
Prague 1, 111 21
Czech Republic

HOME PAGE: http://www.cerge-ei.cz

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