Social learning and monetary policy at the effective lower bound

Arbeitspapier

The first contribution of this paper is to develop a model that jointly accounts for the missing disinflation in the wake of the Great Recession and the subsequently observed inflation-less recovery. The key mechanism works through heterogeneous expectations that may durably lose their anchorage to the central bank (CB)'s target and coordinate on particularly persistent below-target paths. We jointly estimate the structural and the learning parameters of the model by matching moments from both macroeconomic and Survey of Professional Forecasters data. The welfare cost associated with those dynamics may be reduced if the CB communicates to the agents its target or its own inflation forecasts, as communication helps anchor expectations at the target. However, the CB may lose its credibility whenever its announcements become decoupled from actual inflation, for instance in the face of large and unexpected shocks.

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• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bank of Canada Staff Working Paper ; No. 2020-2

Classification and Topics

• Classification: Wirtschaft ; Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access ; Business Fluctuations; Cycles ; Monetary Policy ; Macro-Based Behavioral Economics: General‡
• Subject: Monetary policy ; Monetary policy communication ; Credibility ; Central bankresearch ; Economic models ; Business fluctuations and cycles

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Arifovic, Jasmina ; Grimaud, Alex ; Salle, Isabelle ; Vermandel, Gauthier
• Event: Veröffentlichung
• (who): Bank of Canada
• (where): Ottawa
• (when): 2020

Further information

• DOI: doi:10.34989/swp-2020-2
• Handle: http://hdl.handle.net/10419/241168