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Social learning and monetary policy at the effective lower bound

Arifovic, Jasmina; Grimaud, Alex; Salle, Isabelle; Vermandel, Gauthier (2020-01), Social learning and monetary policy at the effective lower bound. https://basepub.dauphine.fr/handle/123456789/20927

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Type
Document de travail / Working paper
Date
2020-01
Publisher
Bank of Canada
Series title
Bank of Canada Staff Working Papers
Series number
2020-2
Published in
Ottawa, Canada
Pages
60
Metadata
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Author(s)
Arifovic, Jasmina
Department of economics
SIMON FRASER UNIVERSITY BURNABY CAN
Grimaud, Alex
Catholic University of Milan
Amsterdam School of Economics [ASE]
Salle, Isabelle
Bank of Canada
Vermandel, Gauthier
Centre de recherche en économie et management [CREM]
Laboratoire d'Economie de Dauphine [LEDa]
Abstract (EN)
The first contribution of this paper is to develop a model that jointly accounts for the missingdisinflation in the wake of the Great Recession and the subsequently observed inflation-lessrecovery. The key mechanism works through heterogeneous expectations that may durablylose their anchorage to the central bank (CB)’s target and coordinate on particularlypersistent below-target paths. We jointly estimate the structural and the learning parametersof the model by matching moments from both macroeconomic and Survey of ProfessionalForecasters data. The welfare cost associated with those dynamics may be reduced if the CBcommunicates to the agents its target or its own inflation forecasts, as communication helpsanchor expectations at the target. However, the CB may lose its credibility whenever itsannouncements become decoupled from actual inflation, for instance in the face of large andunexpected shocks..
Subjects / Keywords
Monetary policy; Monetary policy communication; Credibility; Central bankresearch; Economic models; Business fluctuations and cycles
JEL
E.E7.E70
E52 - Monetary Policy
E32 - Business Fluctuations; Cycles
C82 - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access