Monetary Policy Regimes and Beliefs

30 Pages Posted: 13 May 2003

See all articles by David Andolfatto

David Andolfatto

Simon Fraser University (SFU) - Department of Economics; Federal Reserve Bank of St. Louis

Paul Gomme

Concordia University; CIREQ

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Abstract

This article investigates the role of beliefs over monetary policy in propagating the effects of monetary policy shocks within the context of a dynamic, stochastic general equilibrium model. In our model, monetary policy periodically switches between low and high money growth regimes. When individuals are unable to observe the regime directly, they form inferences over regime-type based on historical money growth rates. For an empirically plausible money growth process, beliefs evolve slowly in the wake of a regime change. As a result, our model is able to capture some of the observed persistence of real and nominal variables following such a regime change.

Suggested Citation

Andolfatto, David and Gomme, Paul, Monetary Policy Regimes and Beliefs. International Economic Review, Vol. 44, No. 1, pp. 1-30, February 2003. Available at SSRN: https://ssrn.com/abstract=377082

David Andolfatto (Contact Author)

Simon Fraser University (SFU) - Department of Economics ( email )

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Federal Reserve Bank of St. Louis ( email )

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Paul Gomme

Concordia University ( email )

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Canada

CIREQ ( email )

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Montreal, Quebec H3C 3J7
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