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on Central Banking |
| By: | Paul Hubert (OFCE-SciencesPo); Becky Maule (Bank of England) |
| Abstract: | How do private agents interpret central bank actions and communication? To what extent do the effects of monetary shocks depend on the information disclosed by the central bank? This paper investigates the effect of monetary shocks and shocks to the Bank of England’s inflation and output projections on the term structure of UK private inflation expectations, to shed light on private agents’ interpretation of central bank signals about policy and the macroeconomic outlook. We proceed in three steps. First, we correct our dependent variables - market-based inflation expectation measures - for potential risk, liquidity and inflation risk premia. Second, we extract exogenous shocks following Romer and Romer (2004)’s identification approach. Third, we estimate the linear and interacted effects of these shocks in an empirical framework derived from the information frictions literature. We find that private inflation expectations respond negatively to contractionary monetary policy shocks, consistent with the usual transmission mechanism. In contrast, we find that inflation expectations respond positively to positive central bank inflation or output projection shocks, suggesting private agents put more weight on the signal that they convey about future economic developments than about the policy outlook. However, when shocks to central bank inflation projections are interacted with shocks to output projections of the same sign, they have no effect on inflation expectations, suggesting that private agents understand the functioning of the central bank reaction function and put more weight on the policy signal when there is no trade-off. We also find that the effects of contractionary monetary shocks are amplified when they are accompanied by positive shocks to central bank inflation projections. The coordination of policy decisions and macroeconomic projections thus appears important for managing inflation expectations. |
| Keywords: | monetary policy, information processing, signal extraction, market-based inlfation expectations, central bank projections, real-time forecasts |
| JEL: | E52 E58 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:1602&r=cba |
| By: | von Borstel, Julia; Eickmeier, Sandra; Krippner, Leo |
| Abstract: | We investigate the pass-through of monetary policy to bank lending rates in the euro area before and during the sovereign debt crisis. We make the following contributions. First, we use a factor-augmented vector autoregression, which allows us to assess the responses of a large number of country-specific interest rates and spreads. Second, we analyze the effects of monetary policy on the components of the interest rate pass-through, which reflect banks funding risk (including sovereign risk) and markups charged by banks over funding costs. Third, we not only consider conventional but also unconventional monetary policy. We find that while the transmission of conventional monetary policy to bank lending rates has not changed with the crisis, the composition of the IP has changed. Expansionary conventional monetary policy lowered sovereign risk in peripheral countries and longer-term bank funding risk in peripheral and core countries during the crisis, but has been unable to lower banks markups. Unconventional monetary policy helped decreasing lending rates, mainly due to large shocks rather than a strong propagation. |
| JEL: | E52 E43 C32 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113035&r=cba |
| By: | Floro, Danvee; van Roye, Björn |
| Abstract: | This study tests for regime-switching changes in monetary policy's response to increases in overall financial stress and financial sector-specific stresses across a panel of advanced and emerging economy central banks for the periods 1994Q1 to 2013Q2 and 1996Q2 to 2013:Q3, respectively. We put forward a Factor-Augmented Dynamic Panel Threshold regression model with (estimated) common factors in order to deal with endogeneity and crosssectional dependence. First, we find strong evidence of regime-dependence in the response of monetary policy to financial sector-specific stresses. Second, advanced economy central banks pursue aggressive monetary policy loosening in response to stock market and banking stresses only during times of high financial market stress. This result is robust throughout different sample periods and most of our specifications in the model with and without common factor augmentation. On the other hand, emerging market central banks generally conduct restrictive monetary policy in response to stock market, banking and foreign exchange market stresses, but respond only to stock market stress in an accommodative manner in a high financial market stress regime. However, this evidence virtually disappears in the post-2001 period, as we find instead some evidence that exchange rate and banking stresses have a significant tightening effect on policy rates in a high financial stress environment. Third, the estimated common factors have substantial and time-varying effects on the explanatory power of idiosyncratic stock market and foreign exchange stress components in emerging markets. |
| Keywords: | Financial stress,monetary policy,threshold panel regression,cross-section dependence |
| JEL: | E31 E44 E52 E58 C23 C24 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112840&r=cba |
| By: | Schröder, Michael |
| Abstract: | This paper examines the treatment of sovereign debt exposure within the Basel framework and measures the impact of bank regulation on the demand of Monetary Financial Institutions (MFI) for marketable sovereign debt. Our results suggest that bank regulation has a significant positive impact on MFI demand for domestic government securities. The results are representative for the MFI in the euro zone. They remain highly robust and significant after controlling for other influential factors and potential endogeneity. |
| JEL: | G11 G21 G28 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113113&r=cba |
| By: | Winkelmann, Lars; Netsunajev, Aleksei |
| Abstract: | This paper extends the discussion of international comovements of actual inflation rates to inflation expectations. Financial market expectations about inflation rates in the United States (US) and Euro Area (EA) are modeled in a structural vector autoregression (SVAR). We demonstrate how the heteroscedasticity of the expectations data enables a flexible and data-driven statistical identification of the model. A multi-step procedure is proposed to explore the economic nature and geographical source of structural shocks. We emphasize the SVAR s ability to derive shocks that disentangle US specific, EA specific and global components. Our main empirical finding indicates that so-called global inflation translates to short horizon inflation expectations. In contrast, long expectations horizons are mostly driven by domestic shocks, thus, appear rather local. Results support the view of credible monetary policy strategies that anchor inflation expectations. |
| JEL: | E31 F42 E52 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112900&r=cba |
| By: | Quint, Dominic; Tristani, Oreste |
| Abstract: | We study the macroeconomic consequences of the money market tensions associated with the financial crisis of 2008-2009. Our structural model includes the banking model of Gertler and Kyiotaki (2011) in the Smets and Wouters (2003) framework. We highlight two main results. First, a financial shock calibrated to account for the observed increase in spreads on the interbank market can account for one third of the observed, large fall in aggregate investment after the financial crisis of 2008. Second, the liqudity injected on the market by the ECB played an important role in attenuating the macroeconomic impact of the shock. In their absence, aggregate investment would have fallen much more--by between 50 and 70 percent. These effects are somewhat larger than estimated in other available studies. |
| JEL: | E58 E44 E52 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112974&r=cba |
| By: | Hahn, Volker |
| Abstract: | We integrate monetary policy-making by committee into a New Keynesian model to assess the consequences of the committee's institutional characteristics for inflation, output, and welfare. Our analysis delivers the following results. First, we demonstrate that transparency about the committee's future composition may be harmful. Second, we show that longer terms for central bankers lead to more effective output stabilization at the expense of higher inflation variability. Third, larger committees allow for more efficient stabilization of inflation but for less efficient output stabilization. Fourth, large committees and short terms are therefore socially desirable if the weight on output stabilization in the social loss function is low. Fifth, we show that a central banker with random preferences may be preferable to a central banker who shares the preferences of society. |
| JEL: | E58 D71 E52 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112811&r=cba |
| By: | Krause, Thomas; Buch, Claudia M.; Tonzer, Lena |
| Abstract: | Mitigating the negative externalities that systemic risk can create for the financial system is the goal of macroprudential supervision. In Europe, macroprudential supervision is conducted both, at the national and at the European level. In principle, national regulators are responsible for macroprudential policies. Since the establishment of the Banking Union in 2014, the largest banks in the Euro Area are under the direct supervision of the European Central Bank (ECB). In this capacity, the ECB can tighten macroprudential measures implemented at the national level. In this paper, we ask whether the drivers of systemic risk differ when applying a national versus a European perspective. We use market data for about 100 listed European banks to measure each bank's contribution to systemic risk (SRISK) at the national and at the Euro Area level. Our research has three main findings. First, on average, systemic risk has increased during the financial crisis. The difference between systemic risk at the national and the European level is not very large but there is a considerable degree of heterogeneity both across countries and banks. Second, we explore the drivers of systemic risk. A bank s contribution to systemic risk increases in bank size, in bank profitability, and in the share of banks nonperforming loans. It decreases in the share of loans to total assets and in the importance of non-interest income. Third, the qualitative determinants of systemic risk are similar at the national and at the European level while the quantitative importance of some factors differs. |
| JEL: | G01 G21 G28 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113103&r=cba |
| By: | Jannsen, Nils; Potjagailo, Galina; Wolters, Maik |
| Abstract: | We study the effects of monetary policy on output during financial crises. We use a large panel of advanced and emerging economies to guarantee a sufficiently high number of financial crises episodes. A financial crises dummy, which is constructed based on the narrative approach, is interacted with other key macroeconomic variables in a panel VAR. Theory suggests that monetary policy might be more effective in financial crises if it can ease malfunctioning of financial markets for example by loosening credit constraints or restoring confidence. Alternatively, deleveraging and uncertainty might predominate and make the economy less interest rate responsive and monetary policy less effective in financial crises. Taking a sample from the mid 1980s to today we find that an expansionary monetary policy shock is very effective in raising GDP during the recessionary period of a financial crisis. The effect is stronger than in non-crises times. In contrast, during the recovery period of a financial crisis, monetary policy has a very small effect on GDP. These differences can be explained by a confidence channel. During the joint occurrence of a recession and a financial crisis an expansionary monetary policy shock increases consumer confidence and GDP. During the following recovery monetary policy has no effects on confidence or GDP. Other variables like credit, housing prices and exchange rates can at most partially explain differences in transmission between the different regimes. |
| JEL: | E52 E58 G01 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113096&r=cba |
| By: | Ambrosius, Christian |
| Abstract: | While much research has been done on causes and effects of banking crises, little is know about what determines recovery from banking crises, despite of large variations in post-crises performances across countries. In order to identify factors that determine the length of recovery (e.g. the time it takes until countries reach their pre-crisis level of per capita GDP), this paper employs event history analysis on 138 incidents of banking crises between 1970 and 2013. Cox Proportional Hazards show that both domestic and external constraints play a key role for recovering from banking crises. In particular, countries that suffered from simultaneous currency crises as well as those with overvalued currencies tended to recover later. Regarding external factors, a low growth of world trade has a negative effect on recovery, and so does uncertainty in financial markets as reflected in high gold prices. Moreover, contractionary monetary policy of the US Fed as Central Bank of the international key currency has a negative effect on the length of recovery in emerging markets and developing countries with open capital accounts. The latter empirical relationship reflects the vulnerability of developing countries and emerging markets to policies in the global financial centers and points to the necessity of understanding crises policies as embedded within monetary asymmetries that significantly limit the policy space of countries at the lower ends of the global currency hierarchy. |
| JEL: | E44 H12 O23 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112983&r=cba |
| By: | Palek, Jakob |
| Abstract: | Recent work on financial frictions in New Keynesian models suggest that there is a sizable spread between the risk-less interest rate and the borrowing rate. We analyze the optimal policy mix of monetary and fiscal authorities in a currency union with a country-specific credit spread by introducing a cost channel differential. The cost channel decreases the efficiency of monetary policy and increases the need for fiscal stabilization. We show that the importance of fiscal policy in stabilizing shocks increases, when there is a gap in the inflation differential due to a relative shock, an idiosyncratic shock or a credit spread differential. The welfare losses will be increasing (decreasing) in the size of the cost channel, if the nominal interest rate is a demand- (supply-) side instrument. |
| JEL: | E63 E52 E62 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113047&r=cba |
| By: | Daniela Bragoli (Università Cattolica - Milan); Massimiliano Rigon (Bank of Italy); Francesco Zanetti (Oxford University) |
| Abstract: | This study investigates the appropriate measure of inflation in the euro area that the central bank should adopt in order to minimize social welfare losses stemming from volatility in the output gap, inflation and relative prices. We use a model that accounts for both the heterogeneity observed in the degree of price rigidity across regions and sectors, and the asymmetry of real disturbances in relative prices. Our work shows that the optimal weights to assign to each region or economic sector depend on complex interactions between the degree of price stickiness, a country’s economic size and the distribution of shocks across regions. Moreover, the optimal system of weights is primarily affected by the distribution of real shocks across countries. It follows that there is no simple rule of thumb for establishing the optimal weights for each region or economic sector. |
| Keywords: | optimal monetary policy, euro area regions, asymmetric shocks, asymmetric price stickiness |
| JEL: | E52 F41 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1045_16&r=cba |
| By: | Luck, Stephan; Schempp, Paul |
| Abstract: | We study a banking model in which regulatory arbitrage induces the existence of shadow banking next to regulated banks. We show that the size of the shadow banking sector determines its stability. Panic-based runs become possible only if this sector is large. Moreover, if regulated banks conduct shadow banking, a relatively larger shadow banking sector is sustainable. However, crises become contagious and spread to the regulated banking sector. We argue that deposit insurance may fail to eliminate adverse run equilibria in the presence of regulatory arbitrage. It may become tested in equilibrium if regulated banking and shadow banking are intertwined. |
| JEL: | G21 G23 G28 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113204&r=cba |
| By: | Haselmann, Rainer; Kick, Thomas; Behn, Markus; Vig, Vikrant |
| Abstract: | In this paper, we examine how the institutional design affects the outcome of bank bailout decisions. In the German savings bank sector, distress events can be resolved by local politicians or a state-level association. We show that decisions by local politicians with close links to the bank are distorted by personal considerations: While distress events per se are not related to the electoral cycle, the probability of local politicians injecting taxpayers' money into a bank in distress is 30~percent lower in the year directly preceding an election. Using the electoral cycle as an instrument, we show that banks that are bailed out by local politicians experience less restructuring and perform considerably worse than banks that are supported by the savings bank association. Our findings illustrate that larger distance between banks and decision makers reduces distortions in the decision making process, which has implications for the design of bank regulation and supervision. |
| JEL: | G21 G28 D72 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113082&r=cba |
| By: | Stefano Eusepi; Bruce Preston |
| Abstract: | New Keynesian theory identifies a set of principles central to the design and implementation of monetary policy. These principles rely on the ability of a central bank to manage expectations precisely, with policy prescriptions typically derived under the assumption of perfect information and full rationality. In consequence the prevailing policy regime is credible and correctly understood by market participants. Despite considerable advances in understanding, recent events have engendered a reevaluation of the theory and practice of monetary policy. The challenging macroeconomic environment bequeathed by the financial crisis has led many to question the efficacy of monetary policy, and, particularly, question whether central banks can influence expectations with as much control as previously thought. The objective of this survey is to review what is understood about the challenges to the New Keynesian paradigm posed by imperfect knowledge and to assess the degree of confidence with which one should hold the basic prescriptions of modern monetary economics. |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2016-07&r=cba |
| By: | Beck, Günther W.; Beyer, Robert C. M.; Kontny, Markus; Wieland, Volker |
| Abstract: | Ever since the European Central Bank presented its monetary policy strategy on the basis of two pillars "economic" and "monetary" analysis with the latter being used as a cross-check of the first it has been criticized for giving too much importance to monetary aggregates. Opponents argue these aggregates are largely unrelated to monetary policy and provide little or no relevant information. Supporters have instead referred to the success of the Bundesbank in controlling inflation by using monetary targets during the 1970s and early 1980s. Furthermore, loose monetary conditions in the 2000s are viewed by many as a driver of excessive growth of credit and asset prices that set the stage for the global financial crisis. We use a formal characterization of monetary cross-checking and go on to study its role in policy practice empirically. Firstly, we derive historical measures of monetary conditions using this definition of cross-checking for Germany from the 1970s to 1998 and for the euro area since then. We investigate when monetary cross-checking would have called for significant adjustments in interest rate policy. Secondly, we test empirically whether interest rate policy responded to significant deviations of money. Such cross-checks induce a nonlinear shift in rates based on a threshold in terms of filtered money growth. Our estimates of threshold autoregressive models indicate that the behavior of the Bundesbank can well be described by a standard Taylor interest-rate rule augmented by a nonlinear component which induces an interest-rate adjustment when a filtered money growth measure exceeds an empirically specified threshold. Concerning the policy making of the ECB, we find supportive evidence for Trichet s(2008) claim of an interest-rate adjustment induced by a signal from monetary cross-checking at the end of 2004. However, our empirical results would have suggested an even larger (and earlier) response. |
| JEL: | C10 E41 E58 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113126&r=cba |
| By: | Schumacher, Julian; Chamon, Marcos; Trebesch, Christoph |
| Abstract: | The Greek debt restructuring of 2012 showed that the legal terms of sovereign bonds can protect creditors against losses, in particular the type of governing law. This paper studies whether sovereign bonds that are issued in foreign jurisdictions trade at a premium vis-a-vis domestic-law bonds. We use the Eurozone between 2007 and 2014 as a unique testing ground to assess this ``legal safety premium'' and collect secondary market bond yield data for the near-universe of Eurozone government bonds issued in foreign jurisdictions. Controlling for currency risk, liquidity risk, and term structure, we find that foreign-law bonds indeed carry lower yields on average. But a sizable premium only emerges for large values of credit risk (CDS spreads beyond 500bp). At those levels, a 100bp increase in CDS spreads is associated with a 30-80bp larger yield premium on foreign-law bonds. In contrast, we do not find a premium for countries that are perceived as low risk. These results indicate that sovereigns in distress can, at the margin, borrow at lower rates under foreign law. |
| JEL: | G12 G15 F34 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113199&r=cba |
| By: | Horn, Fabian |
| Abstract: | Sovereign defaults enable the defaulting countries to eliminate its debt, which raises the question why sovereign debt can exist, given that lenders fear losing their money. Thus, a cost burden must exist for a country in order to achieve the government paying its debt. Historically, sovereign defaults mostly occur in times of low GDP growth rates. This makes it impossible to isolate the defaults impact on macroeconomic fundamentals since the vice-versa causality cannot be ruled out when a traditional regression analysis is applied. With this, it is not conceivable to quantify the defaults idiosyncratic costs. An instrument variable for a sovereign default has not been found and it is likely that such an instrument does not exist at all. This paper applies a natural experiment approach to circumvent the above mentioned causality problem. Odious debt cases, as well as scenarios where the government leaders have argued that the government debt is illegitimate, are applied to quantify the sovereign default s impact on macroeconomic fundamentals. Since only few of these cases are available, a panel analysis is conducted, using the Abadie and Gardeazabal (2003) and Abadie et al. (2010) synthetic control method for comparative case studies, in order to generate synthetic counterfactual countries that have the same macroeconomic fundamentals in the pre-default period. In addition to that, the creditors behavior towards the defaulting country is analyzed, giving hints that the GDP, FDI s, private lending as well as development aid may decline after the non-necessary default is announced. |
| JEL: | C82 F34 F51 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113125&r=cba |
| By: | Strehl, Wolfgang; Engler, Philipp |
| Abstract: | We analyse the welfare properties of progressive income taxes in a stylized DSGE model of a currency union calibrated to the Eurozone. When the central bank follows a standard Taylor rule and volatility originates solely in productivity shocks, we find that considerable welfare gains can be achieved by introducing a progressive income tax schedule. The reason is that the slightly lower average levels of consumption and greater volatility of hours are more than offset in their effects on welfare by a significant reduction in consumption volatility. However, at the aggregate level this result is not robust to the introduction of rule-of-thumb households, but we find a positive welfare effect for the latter type of households while intertemporally optimizing households lose. Furthermore, under an optimal monetary policy, welfare falls even in the absence of rule-of-thumb households. When demand shocks are considered, progressive taxes cannot improve welfare. Increasing tax progression above the Eurozone average is a "beggar-thyself" policy for all specifications. |
| JEL: | E62 E52 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112823&r=cba |
| By: | Cycon, Lisa; Koetter, Michael |
| Abstract: | Based on detailed loan portfolio data of a top-20 universal bank in Germany, we investigate the effect of unconventional monetary policy on corporate loan pricing. We can decompose corporate lending rates, thereby shedding light on intra-bank transmission of monetary policy. We identify policy effects on contracted customer rates, refinancing rates charged internally, markups earned by the bank, and loan volumes by exploiting the co-existence of eurozone-wide security purchase programs by the European Central Bank (ECB) and local fiscal policies that are determined autonomously at the district level where bank customers reside between August 2011 until December 2013. The purchase programs of the ECB reduced refinancing costs significantly. Local fiscal stimuli increased loan prices and margins earned. The differential effect of unconventional expansionary monetary policy given local tax environments is significantly negative. Lending volumes do not respond significantly though. |
| JEL: | E43 G18 G21 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112831&r=cba |
| By: | Kang, Dae Woong; Ligthart, Nick; Mody, Ashoka |
| Abstract: | As the financial crisis gathered momentum in 2007, the United States Federal Reserve brought its policy interest rate aggressively down from 5 1/4 percent in September 2007 to virtually zero by December 2008. In contrast, although facing the same economic and financial stress, the European Central Bank's first action was to raise its policy rate in July 2008. The ECB began lowering rates only in October 2008 once near global financial meltdown left it with no choice. Thereafter, the ECB lowered rates slowly, interrupted by more hikes in April and July 2011. We use the "abnormal" increase in stock prices - the rise in the stock price index that was not predicted by the trend in the previous 20 days - to measure the market's reaction to the announcement of the interest rate cuts. Stock markets responded favorably to the Fed interest rate cuts but, on average, they reacted negatively when the ECB cut its policy rate. The Fed's early and aggressive rate cuts established its intention to provide significant monetary stimulus. That helped renew market optimism, consistent with the earlier economic recovery. In contrast, the ECB started building its shelter only after the storm had started. Markets interpreted even the simulative ECB actions either as "too little, too late" or as signs of bad news. We conclude that by recognizing the extraordinary nature of the circumstances, the Fed's response not only achieved better economic outcomes but also enhanced its credibility. The ECB could have acted similarly and stayed true to its mandate. The poorer economic outcomes will damage the ECB's long-term credibility. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:527&r=cba |
| By: | Trebesch, Christoph; Zettelmeyer, Jeromin |
| Abstract: | We study central bank interventions in times of severe distress (mid-2010), using a unique bond-level dataset of ECB purchases of Greek sovereign debt. ECB bond buying had a large impact on the price of short and medium maturity bonds, resulting in a remarkable twist of the Greek yield curve. However, the effects were limited to those sovereign bonds actually bought. We find little evidence for positive effects on market quality, or spillovers to close substitute bonds, CDS markets, or corporate bonds. The interventions thus had very local effects only, consistent with theories of segmented bond markets. |
| JEL: | E43 E58 F34 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112809&r=cba |
| By: | Lamla, Michael; Dräger, Lena; Pfajfar, Damjan |
| Abstract: | Using the microdata of the Michigan Survey of Consumers, we evaluate whether U.S. consumers form macroeconomic expectations consistent with different economic concepts. We observe that 50\% of consumers have expectations consistent with the Income Fisher equation, 46\% with the Taylor rule and 34\% with the Phillips curve. For the Taylor rule and the Phillips curve we observe less consistency during recessions and with high inflation. Moreover, changes in the communication policy of the Fed affect consistency. The strongest positive effect comes from the introduction of the official inflation target. Finally, consumers with theory-consistent expectations have lower absolute inflation forecast errors. |
| JEL: | E52 D84 C25 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113170&r=cba |