Monetary policy uncertainty and its effects
Abstract/Contents
- Abstract
- This thesis consists of three chapters that study the effects of monetary policy uncertainty and deviations from rule-based policy. In the first chapter, I develop an extension of the standard New Keynesian model to monetary policy regime switching to study the impact of uncertainty around the future inflation target. First, I fully characterize how the responses of current inflation and output to inflation target uncertainty depend on the monetary policy rule. If monetary policy is passive, inflation may increase far beyond the anticipated increase in the inflation target, while a strong monetary response to expected inflation results in an immediate drop in the inflation rate. Next, I derive the optimal response of the central bank, which can be achieved by adjusting the current inflation target. A central bank unwilling to adjust the inflation target can optimally adjust other policy rule parameters and can often obtain comparatively similar welfare benefits. Finally, I examine the implications of a perfectly anticipated change in the inflation target and find it is likely to generate cyclical dynamics for inflation and output under a constant policy rule. An optimal time varying policy rule or uncertainty in the period of the inflation target change eliminates cyclical fluctuations and improves welfare. In the second chapter, I apply the New Keynesian model with regime switching of the policy rule to study other dimensions of monetary policy uncertainty. I find that expectations of a regime shift in the future affect current inflation stability in the direction of the expected policy shift, but paradoxically expectations of a shift to a sub-optimal regime may result in better outcomes under the current regime due to the asymmetric effect on output and inflation stability. Additionally, I find that the central bank's first best response is to completely eliminate the uncertainty and that regime switching can only be part of an optimal policy if eventually monetary policy converges to the optimal single regime policy. In the final chapter, I construct the differences between rule-based monetary policy for multiple interest rate rules and the actual interest rates for nine countries using real-time data available to policymakers at the time. I document that more rule-like policy is associated with greater economic stability. Additionally, I find evidence that the association between rule-like policy and greater economic stability is causal by examining the timing of the structural breaks and the changes in central bank policy, using vector autoregressions, and regression specifications relying on the temporal ordering of lagged deviations from the policy rules.
Description
| Type of resource | text |
|---|---|
| Form | electronic resource; remote; computer; online resource |
| Extent | 1 online resource. |
| Place | California |
| Place | [Stanford, California] |
| Publisher | [Stanford University] |
| Copyright date | 2018; ©2018 |
| Publication date | 2018; 2018 |
| Issuance | monographic |
| Language | English |
Creators/Contributors
| Author | Teryoshin, Yevgeniy |
|---|---|
| Degree supervisor | Taylor, John B |
| Thesis advisor | Taylor, John B |
| Thesis advisor | Auclert, Adrien |
| Thesis advisor | Klenow, Peter J |
| Degree committee member | Auclert, Adrien |
| Degree committee member | Klenow, Peter J |
| Associated with | Stanford University, Department of Economics. |
Subjects
| Genre | Theses |
|---|---|
| Genre | Text |
Bibliographic information
| Statement of responsibility | Yevgeniy Teryoshin. |
|---|---|
| Note | Submitted to the Department of Economics. |
| Thesis | Thesis Ph.D. Stanford University 2018. |
| Location | electronic resource |
Access conditions
- Copyright
- © 2018 by Yevgeniy Teryoshin
- License
- This work is licensed under a Creative Commons Attribution Non Commercial 3.0 Unported license (CC BY-NC).
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