Endogenous monetary policy regime change
By: Troy Davig and Eric Leeper
Contributors: Leeper, Eric Michael; Federal Reserve Bank of Kansas City. Research Division
Series: RWP -- 06-11
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 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: Title from PDF file (viewed on Sept. 27, 2006).

"September 2006."

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