Real and Nominal Effects of Monetary Shocks under Time-Varying Disagreement

Arbeitspapier

This paper investigates the heterogeneity of monetary policy transmission under time-varying disagreement regimes using a threshold VAR. Empirically, I establish that during times of high disagreement, prices respond more sluggishly in response to monetary shocks. These stickier prices cause a flatter Phillips curve, leading to the empirical result that monetary policy has stronger real (output) effects in high disagreement periods. I develop a tractable theoretical model that show rationally inattentive price-setters produce this result. The model also links disagreement and uncertainty – two fundamentally different concepts, and bridges the results of this paper to the literature on state-dependent monetary transmission. The main result highlights a role for improved central bank communications that reduce disagreement among economic agents, which lessens output falls when implementing disinflationary monetary policies.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 7956

Classification and Topics

• Classification: Wirtschaft ; Business Fluctuations; Cycles ; Monetary Policy ; Central Banks and Their Policies ; Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
• Subject: time-varying disagreement ; monetary policy ; threshold VAR ; rational inattention

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Esady, Vania
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2019

Further information

• Handle: http://hdl.handle.net/10419/214958
• Last update: 10.03.2025, 11:45 AM CET