We show that actively stabilizing economic activity plays a more prominent role in the conduct of monetary policy when potential output is subject to hysteresis. We augment a basic New Keynesian model by hysteresis in potential output and contrast simulation outcomes of this extended model to the standard model. We find that considering hysteresis allows for a more realistic amplification of macroeconomic shocks and persistent movements in output after monetary shocks. Our central policy implication of active output gap stabilization arises from stability analyses and welfare considerations.
Das sogenannte reversal puzzle beschreibt ein Phänomen, demzufolge der Effekt von forward guidance -technisch implementiert als perfekt antizipierte Zinsbindung -von expansiv zu kontraktiv wechseln kann, je nachdem wie lange die Zinsbindung anhält. Wir untersuchen, ob das reversal puzzle noch immer auftritt, wenn wir die Annahme der perfekten Antizipation aufgeben und unterschiedliche Grade der Antizipation zulassen. BeitragWir zeigen, dass der Grad der Antizipation für das Auftreten des reversal puzzles eine Schlüsselrolle spielt. Dafür analysieren wir drei unterschiedliche Annahmen über den Grad der Antizipation: perfekte Antizipation, keine Antizipation und unvollkommene Antizipation. Wir implementieren den Fall der unvollkommenen Antizipation mittels eines Markov-switching-Ansatzes, in dem das Regime der Zinsbindung stochastisch wiederkehrt. ErgebnisseAntizipieren die Agenten die Zinsbindung perfekt, ist das reversal puzzle ein robustes Simulationsergebnis. Wenn die Agenten eine zukünftige Zinsbindung nicht antizipieren, tritt kein reversal puzzle auf. Wenn die Agenten eine Zinsbindung lediglich unvollständig antizipieren können, ist das Auftreten und die Dauer einer einzelnen Zinsbindungsepisode stochastisch, aber die Häufigkeit und die durchschnittliche Dauer des Regimes der Zinsbindung sind bekannt, da die Agenten die Übergangswahrscheinlichkeiten von einem Regime zum anderen kennen. Der Grad der Antizipation hängt dann von der durchschnittlichen Dauer und der Häufigkeit des Zinsbindungsregimes ab. Für eine große Spannbreite der durchschnittlichen Dauer des Zinsbindungsregimes tritt das reversal puzzle nicht auf, selbst wenn die Häufigkeit des Zinsbindungsregimes doppelt so hoch ist wie ein empirisch relevanter Wert (gemessen an der Häufigkeit einer bindenden Zinsuntergrenze in den USA nach dem Zweiten Weltkrieg). Das reversal puzzle tritt nur für extreme und eher unplausible Annahmen über die Häufigkeit des Zinsbindungsregimes auf.
The ECB's price stability mandate has been defined by the Treaty. But the Treaty has not spelled out what price stability precisely means. To make the mandate operational, the Governing Council has provided a quantitative definition in 1998 and a clarification in 2003. The landscape has changed notably compared to the time the strategy review was originally designed. At the time, the main concern of the Governing Council was to anchor inflation at low levels in face of the inflationary history of the previous decades. Over the last decade economic conditions have changed dramatically: the persistent low-inflation environment has created the concrete risk of de-anchoring of longer-term inflation expectations. Addressing low inflation is different from addressing high inflation. The ability of the ECB (and central banks globally) to provide the necessary accommodation to maintain price stability has been tested by the lower bound on nominal interest rates in the context of the secular decline in the equilibrium real interest rate. Against this backdrop, this report analyses: the ECB's performance as measured against its formulation of price stability; whether it is possible to identify a preferred level of steady-state inflation on the basis of optimality considerations; advantages and disadvantages of formulating the objective in terms of a focal point or a range, or having both; whether the medium-term orientation of the ECB's policy can serve as a mechanism to cater for other considerations; how to strengthen, in the presence of the lower bound, the ECB's leverage on private-sector expectations for inflation and the ECB's future policy actions so that expectations can act as 'automatic stabilisers' and work alongside the central bank.
This report discusses the role of the European Union's full employment objective in the conduct of the ECB's monetary policy. It first reviews a range of indicators of full employment, highlights the heterogeneity of labour market outcomes within different groups in the population and across countries, and documents the flatness of the Phillips curve in the euro area. In this context, it is stressed that labour market structures and trend labour market outcomes are primarily determined by national economic policies. The report then recalls that, in many circumstances, inflation and employment move together and pursuing price stability is conducive to supporting employment. However, in response to economic shocks that give rise to a temporary trade-off between employment and inflation stabilisation, the ECB's medium-term orientation in pursuing price stability is shown to provide flexibility to contribute to the achievement of the EU's full employment objective. Regarding the conduct of monetary policy in a low interest rate environment, model-based simulations suggest that history-dependent policy approaches − which have been proposed to overcome lasting shortfalls of inflation due to the effective lower bound on nominal interest rates by a more persistent policy response to disinflationary shocks − can help to bring employment closer to full employment, even though their effectiveness depends on the strength of the postulated expectations channels. Finally, the importance of employment income and wealth inequality in the transmission of monetary policy strengthens the case for more persistent or forceful easing policies (in pursuit of price stability) when interest rates are constrained by their lower bound.
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