Regime changes and monetary stagflation
By: Edward S. Knotek II
Contributors: Federal Reserve Bank of Kansas City. Research Division
Series: RWP -- 06-05; Research working paper (Federal Reserve Bank of Kansas City : Online) -- 06-05.
Publisher: Research Division, Federal Reserve Bank of Kansas City
Published: 2006
Place of publication: Kansas City [Mo.]
Language: eng
Format: [electronic resource] /
Description: This paper examines whether monetary shocks can consistently generate stagflation in a dynamic, stochastic setting. I assume that the monetary authority can induce transitory shocks and longer-lasting monetary regime changes in its operating instrument. Firms cannot distinguish between these shocks and must learn about them using a signal extraction problem. The possibility of changes in the monetary regime greatly improves the ability of money to generate stagflation. This is true whether the regime actually changes or not. If the monetary regime changes on average once every ten years, stagflation occurs in 76% of model simulations. The intuition for this result is simple: increased output volatility due to learning coupled with inflation inertia produce conditions conducive to the emergence of stagflation. The incidence of stagflation can be reduced by a stable, transparent central bank.
Notes: Title from PDF file (viewed on May 31, 2006).

"May 2006."

Includes bibliographical references.

Also available in print.

System requirements: Adobe Acrobat Reader.

Mode of access: World Wide Web.