Endogenous Monetary Policy Credibility in a Small Macro Model of Israel

Author/Editor: Argov, Eyal ; Epstein, Natan P. ; Karam, Philippe D ; Laxton, Douglas ; Rose, David
Publication Date: August 01, 2007
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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(s): Monetary policy | Israel | Inflation targeting | Economic models

Author's Keyword(s): Monetary policy credibility | non-linearity | inflation targeting
Publication Date: August 01, 2007
ISBN/ISSN: 1934-7073 Format: Paper
Stock No: WPIEA2007207 Pages: 33
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