Endogenous Monetary Policy Credibility in a Small Macro Model of Israel

Author/Editor:

Eyal Argov ; David Rose ; Philippe D Karam ; Natan P. Epstein ; Douglas Laxton

Publication Date:

August 1, 2007

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper extends a small linear model of the Israeli economy to allow for nonlinearities in the inflation-output process that arise from convexity in the Phillips curve and endogenous monetary policy credibility. We find that the dynamic responses to shocks in the extended model more closely resemble features in the data from the period 2001?03. In particular, the extended model does a much better job in accounting for the deterioration in monetary policy credibility and the output costs of regaining monetary policy credibility once it has been lost.

Series:

Working Paper No. 07/207

Subject:

English

Publication Date:

August 1, 2007

ISBN/ISSN:

9781451867718/1018-5941

Stock No:

WPIEA2007207

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

33

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