Arbeitspapier
Interest rate pegs and the reversal puzzle: On the role of anticipation
We revisit the reversal puzzle: A counterintuitive contraction of inflation in response to an interest rate peg. We show that it is intimately related to the degree of agents' anticipation. If agents perfectly anticipate the peg, reversals occur depending on the duration of the peg. If they do not anticipate the peg, reversals are absent. In the case of imperfect anticipation, implemented by a Markov-switching framework, we measure the degree of anticipation by the frequency of the peg regime. Even if the frequency of the peg takes on a value twice as large as empirically observed, the reversal puzzle is absent.
- ISBN
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978-3-95729-770-9
- Language
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Englisch
- Bibliographic citation
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Series: Deutsche Bundesbank Discussion Paper ; No. 50/2020
- Classification
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Wirtschaft
Business Fluctuations; Cycles
Monetary Policy
- Subject
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Interest rate peg
Reversal puzzle
Regime-switching model
- Event
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Geistige Schöpfung
- (who)
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Gerke, Rafael
Giesen, Sebastian
Kienzler, Daniel
- Event
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Veröffentlichung
- (who)
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Deutsche Bundesbank
- (where)
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Frankfurt a. M.
- (when)
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2020
- Handle
- Last update
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10.03.2025, 11:41 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Gerke, Rafael
- Giesen, Sebastian
- Kienzler, Daniel
- Deutsche Bundesbank
Time of origin
- 2020