Endogenous Monetary Policy Regime Change / Troy Davig, Eric M. Leeper.

Format:

Book

Author/Creator:

Davig, Troy.

Contributor:

National Bureau of Economic Research.

Leeper, Eric M.

Series:

Working Paper Series (National Bureau of Economic Research) no. w12405.

NBER working paper series no. w12405

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2006.

Summary:

This paper makes changes in monetary policy rules (or regimes) endogenous. Changes are triggered when certain endogenous variables cross specified thresholds. Rational expectations equilibria are examined in three models of threshold switching to illustrate that (i) expectations formation effects generated by the possibility of regime change can be quantitatively important; (ii) symmetric shocks can have asymmetric effects; (iii) endogenous switching is a natural way to formally model preemptive policy actions. In a conventional calibrated model, preemptive policy shifts agents' expectations, enhancing the ability of policy to offset demand shocks; this yields a quantitatively significant "preemption dividend."

Notes:

Print version record

August 2006.