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Full-Text Articles in Economics
The Influence Of Learning And Price-Level Targeting On Central Bank Forward Guidance, Stephen J. Cole
The Influence Of Learning And Price-Level Targeting On Central Bank Forward Guidance, Stephen J. Cole
Economics Faculty Research and Publications
This paper examines how the effectiveness of central bank forward guidance depends on two key channels: the expectations formation process and the monetary policy regime. The results show that rational expectations relative to an adaptive learning rule amplifies the positive benefits a price-level targeting central bank creates for forward guidance. Specifically, forward guidance generates greater amounts of output and inflation under a price-level than inflation targeting monetary policy regime, but rational expectations overstates these positive benefits compared to adaptive learning. The different responses of expectations between rational expectations and adaptive learning to forward guidance are driving this performance gap. Thus, …
(Wp 2020-03) The Effect Of Central Bank Credibility On Forward Guidance In An Estimated New Keynesian Model, Stephen J. Cole, Enrique Martínez-García
(Wp 2020-03) The Effect Of Central Bank Credibility On Forward Guidance In An Estimated New Keynesian Model, Stephen J. Cole, Enrique Martínez-García
Economics Working Papers
This paper examines the effectiveness of forward guidance in an estimated New Keynesian model with imperfect central bank credibility. We estimate credibility for the U.S. Federal Reserve with Bayesian methods exploiting survey data on interest rate expectations from the Survey of Professional Forecasters (SPF). The results provide important takeaways: (1) The estimate of Federal Reserve credibility in terms of for- ward guidance announcements is relatively high, which indicates a degree of forward guidance effectiveness, but still one that is below the fully credible case. Hence, anticipation effects are attenuated and, accordingly, output and inflation do not respond as favorably to …
(Wp 2016-02) The Limits Of Central Bank Forward Guidance Under Learning, Stephen J. Cole
(Wp 2016-02) The Limits Of Central Bank Forward Guidance Under Learning, Stephen J. Cole
Economics Working Papers
Central bank forward guidance emerged as a pertinent tool for monetary policymakers since the Great Recession. Nevertheless, the effects of forward guidance remain unclear. This paper investigates the effectiveness of forward guidance while relaxing two standard macroeconomic assumptions: rational expectations and frictionless financial markets. Agents forecast future macroeconomic variables via either the rational expectations hypothesis or a more plausible theory of expectations formation called adaptive learning. A standard Dynamic Stochastic General Equilibrium (DSGE) model is extended to include the financial accelerator mechanism. The results show that the addition of financial frictions amplifies the differences between rational expectations and adaptive learning …
Uncertainty And Identity: A Post Keynesian Approach, John B. Davis
Uncertainty And Identity: A Post Keynesian Approach, John B. Davis
Economics Faculty Research and Publications
Marshall’s asset equilibrium model provides a way of
explaining the identity of entrepreneurs. Keynes adopted this model but
transformed it when he emphasized the short-period and volatile
character of long-term expectations. This entails a view of entrepreneur
identity in which radical uncertainty plays a central role. This in turn
deepens the post Keynesian view of uncertainty as ontological in that
entrepreneurs’ survival plays into their behavior. This paper explores
this role-based view of individual identity and uses the analysis to
comment on Keynes’s ideas for the socialization of investment and
euthanasia of the rentier in the last chapter of The …