Deconstructing the Art of Central Banking

36 Pages Posted: 9 Feb 2006

See all articles by Tamim Bayoumi

Tamim Bayoumi

International Monetary Fund (IMF); Centre for Economic Policy Research (CEPR)

Silvia Sgherri

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2004

Abstract

This paper proposes a markedly different transmission mechanism from monetary policy to the macroeconomy, focusing on how policy changes nominal inertia in the Phillips curve. Using recent theoretical developments, we examine the properties of a small, estimated U.S. monetary model distinguishing four monetary regimes employed since the late 1950s. We find that changes in monetary policy are linked to shifts in nominal inertia, and that these improvements in supply-side flexibility are indeed the main channel through which monetary policy lowers the volatility of inflation and, even more importantly, output.

Keywords: Monetary policy, inflation, rational expectation models

JEL Classification: E31, E32

Suggested Citation

Bayoumi, Tamim and Sgherri, Silvia, Deconstructing the Art of Central Banking (October 2004). IMF Working Paper No. 04/195. Available at SSRN: https://ssrn.com/abstract=879020

Tamim Bayoumi (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6333 (Phone)
202-623-4795 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Silvia Sgherri

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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