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Please use this identifier to cite or link to this item: http://hdl.handle.net/2108/63

Title: Endogenous monetary policy with unobserved potential output
Authors: Cukierman, Alex
Lippi, Francesco
Keywords: monetary policy
potential output
filtering
inflation
output gap
Issue Date: Jul-2003
Publisher: CEIS
Series/Report no.: CEIS Tor Vergata Research Paper
26
Abstract: This paper characterizes endogenous monetary policy when policymakers are uncertain about the extent to which movements in output and inflation are due to changes in potential output or to cyclical demand and cost shocks. We refer to this informational limitation as the "information problem" (IP). Main results of the paper are: 1. Policy is likely to be excessively loose (restrictive) for some time when there is a large decrease (increase) in potential output in comparison to a full information benchmark. This provides a partial but unified explanation for the inflation of the seventies and the price stability of the nineties. 2. Errors in forecasting potential output and the output gap are generally serially correlated. 3. A quantitative assessment, based on an empirical model of the US economy developed by Rudebusch and Svensson (1999) indicates that, during and following periods of large changes in potential output, the IP significantly affects the dynamics of inflation and output. ...
URI: http://ssrn.com/abstract=428521
http://hdl.handle.net/2108/63
Appears in Collections:Research papers

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