Monetary Policy, Endogenous Inattention, and the Volatility Trade-off
| dc.contributor.author | Branch, William A. | |
| dc.contributor.author | Carlson, John | |
| dc.contributor.author | Evans, George W., 1949- | |
| dc.contributor.author | McGough, Bruce | |
| dc.date.accessioned | 2005-03-22T23:14:05Z | |
| dc.date.available | 2005-03-22T23:14:05Z | |
| dc.date.issued | 2004-12-07 | |
| dc.description | 52 p. | en |
| dc.description.abstract | This paper addresses the output-price volatility puzzle by studying the interaction of optimal monetary policy and agents' beliefs. We assume that agents choose their information acquisition rate by minimizing a loss function that depends on expected forecast errors and information costs. Endogenous inattention is a Nash equilibrium in the information processing rate. Although a decline of policy activism directly increases output volatility, it indirectly anchors expectations, which decreases output volatility. If the indirect effect dominates then the usual trade-off between output and price volatility breaks down. This provides a potential explanation for the "Great Moderation" that began in the 1980's. | en |
| dc.format.extent | 531074 bytes | |
| dc.format.mimetype | application/pdf | |
| dc.identifier.uri | https://hdl.handle.net/1794/662 | |
| dc.language.iso | en_US | |
| dc.publisher | University of Oregon, Dept of Economics | en |
| dc.relation.ispartofseries | University of Oregon Economics Department Working Papers ; 2004-19 | |
| dc.subject | Expectations | en |
| dc.subject | Optimal monetary policy | en |
| dc.subject | Bounded rationality | en |
| dc.subject | Economic stabilization | en |
| dc.subject | Adaptive learning | en |
| dc.title | Monetary Policy, Endogenous Inattention, and the Volatility Trade-off | en |
| dc.type | Working Paper | en |