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Deconstructing the Art of Central Banking
Author:
Mr. Tamim Bayoumi
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and
Ms. Silvia Sgherri null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2004: Issue 195
Language:
English
Publication Date:
01 Oct 2004
DOI:
https://doi.org/10.5089/9781451859942.001
ISBN:
9781451859942
ISSN:
1018-5941
Pages:
36
Keywords:
WP; inflation inertia; monetary policy; inflation; rational expectation models; inflation volatility; reaction function; inflation uncertainty; inflation dynamics; monetary policy uncertainty; Output gap; Estimation techniques; Real interest rates
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund