Deconstructing the Art of Central Banking

Author/Editor:

Tamim Bayoumi ; Silvia Sgherri

Publication Date:

October 1, 2004

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 proposes a markedly different transmission mechanism from monetary policy to the macroeconomy, focusing on how policy changes nominal inertia in the Phillips curve. Using recent theoretical developments, we examine the properties of a small, estimated U.S. monetary model distinguishing four monetary regimes employed since the late 1950s. We find that changes in monetary policy are linked to shifts in nominal inertia, and that these improvements in supply-side flexibility are indeed the main channel through which monetary policy lowers the volatility of inflation and, even more importantly, output.

Series:

Working Paper No. 04/195

Subject:

English

Publication Date:

October 1, 2004

ISBN/ISSN:

9781451859942/1018-5941

Stock No:

WPIEA1952004

Format:

Paper

Pages:

36

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