Browsing by Subject "Markov-switching models"

Now showing 1 - 3 of 3

Open Access
Constrained Discretion and Central Bank Transparency
(Economic Research Initiatives at Duke (ERID), 2015-02-01) Bianchi, F; Melosi, L
We develop and estimate a general equilibrium model to quantitatively assess the effects and welfare implications of central bank transparency. Monetary policy can deviate from active inflation stabilization and agents conduct Bayesian learning about the nature of these deviations. Under constrained discretion, only short deviations occur, agents' uncertainty about the macroeconomy remains contained, and welfare is high. However, if a deviation persists, uncertainty accelerates and welfare declines. Announcing the future policy course raises uncertainty in the short run by revealing that active inflation stabilization will be temporarily abandoned. However, this announcement reduces policy uncertainty and anchors inflationary beliefs at the end of the policy. For the U.S. enhancing transparency is found to increase welfare.
Open Access
Escaping the Great Recession
(Economic Research Initiatives at Duke (ERID), 2015-01-01) Bianchi, F; Melosi, L
High uncertainty is an inherent implication of the zero lower bound, while deflation is not because of inflationary pressure due to uncertainty about how debt will be stabilized. We show that policy uncertainty empirically accounts for the absence of deflation in the US economy. Announcing fiscal austerity is detrimental in the short run, but it preserves macroeconomic stability. On the other hand, a recession can be mitigated by abandoning fiscal discipline, at the cost of increasing macroeconomic instability. The policy trade-off can be resolved by committing to inflating away only the portion of debt accumulated during the recession.
Open Access
The Dire Effects of the Lack of Monetary and Fiscal Coordination
(2017-07-06) Bianchi, Francesco; Melosi, Leonardo