{
  "title": "Monetary Magic? How the Fed Improved the Flexibility of the U.S. Economy",
  "publication": "IMF Working Papers, February 1, 2004",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/30/monetary-magic-how-the-fed-improved-the-flexibility-of-the-u-s-17128",
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  "summary": "Extending recent theoretical contributions on sources of inflation inertia, we argue that monetary uncertainty accounts for sluggish expectations adjustment to nominal disturbances. Estimating a model in which rational individuals learn over time about shifts in U.S.",
  "sections": [
    {
      "heading": "Summary",
      "content": "- Extends recent theoretical contributions on sources of inflation inertia.\n- Argues that monetary uncertainty accounts for sluggish expectations adjustment to nominal disturbances.\n- Estimates a model in which rational individuals learn over time about shifts in U.S. monetary policy and the Phillips curve.\n- Finds strong evidence that a link exists between monetary uncertainty and sluggish expectations adjustment.\n- Concludes these results:\n  - Bring into question the standard approach for evaluating monetary rules that assumes unchanged private sector responses.\n  - Help clarify the role of monetary stability in reducing output variability in the United States and elsewhere.\n  - Present a subtle and dynamic story of the interaction between monetary policy and the supply side of the economy."
    },
    {
      "heading": "Key findings and implications",
      "content": "- Monetary uncertainty is identified as a source of inflation inertia and sluggish adjustment of expectations.\n- Private sector learning about shifts in monetary policy and the Phillips curve materially influences macroeconomic dynamics.\n- Evaluations of monetary rules should account for changing private sector responses rather than assuming them unchanged.\n- Monetary stability contributes to reduced output variability."
    },
    {
      "heading": "Methodology and technical approach",
      "content": "- Uses an estimated model where rational individuals learn over time about shifts in U.S. monetary policy and the Phillips curve.\n- Employs techniques consistent with recent theoretical literature on inflation inertia (specific estimation methods referenced in the text include the Kalman filter as a keyword)."
    },
    {
      "heading": "Subject areas and keywords",
      "content": "- Subject: Disinflation, Financial services, Inflation, Inflation persistence, Output gap, Prices, Production, Real interest rates\n- Keywords: coefficient estimate, Disinflation, Inflation, Inflation dynamics, inflation expectation, inflation inertia, Inflation persistence, Kalman filter, Monetary policy, Output gap, reaction function, Real interest rates, uncertainty granger, WP\n\n---\n\n Content in this bundle\n\n- Wp0424\n  - Wp0424 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Wp0424 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/monetary-magic-how-the-fed-improved-the-flexibility-of-the-u-s-17128"
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    "Authors: Tamim Bayoumi, Silvia Sgherri",
    "Published: February 1, 2004",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451844177.001",
    "Extends recent theoretical contributions on sources of inflation inertia.",
    "Argues that monetary uncertainty accounts for sluggish expectations adjustment to nominal disturbances.",
    "Estimates a model in which rational individuals learn over time about shifts in U.S. monetary policy and the Phillips curve.",
    "Finds strong evidence that a link exists between monetary uncertainty and sluggish expectations adjustment.",
    "Concludes these results:",
    "Monetary uncertainty is identified as a source of inflation inertia and sluggish adjustment of expectations.",
    "Private sector learning about shifts in monetary policy and the Phillips curve materially influences macroeconomic dynamics.",
    "Evaluations of monetary rules should account for changing private sector responses rather than assuming them unchanged.",
    "Monetary stability contributes to reduced output variability.",
    "Uses an estimated model where rational individuals learn over time about shifts in U.S. monetary policy and the Phillips curve.",
    "Employs techniques consistent with recent theoretical literature on inflation inertia (specific estimation methods referenced in the text include the Kalman filter as a keyword).",
    "Subject: Disinflation, Financial services, Inflation, Inflation persistence, Output gap, Prices, Production, Real interest rates",
    "Keywords: coefficient estimate, Disinflation, Inflation, Inflation dynamics, inflation expectation, inflation inertia, Inflation persistence, Kalman filter, Monetary policy, Output gap, reaction function, Real interest rates, uncertainty granger, WP",
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