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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
Authorized for Distribution: August 1, 2007
Electronic Access: Free Full Text (PDF file size is 459KB)
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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(s): Monetary policy | Israel | Inflation targeting | Economic models
Author's keyword(s): Monetary policy credibility | non-linearity | inflation targeting
    Published:   August 1, 2007        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA2007207   Pages:   33
    Price:   US$18.00
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