Université de Lausanne
Ecole des HEC
Département d'économétrie et d'économie politique

SEMINAIRE BROWNBAG

Thursday 8 November 8, 2007, 12:15
Internef, room 231

Elmar MERTENS
(Studienzentrum Gerzensee)

Managing Beliefs about Monetary Policy under Discretion

Abstract
Optimal monetary policy becomes tricky when the central bank has better information than the public: Policy does not only affect economic fundamentals, but also people's beliefs. For a general class of widely studied DSGE models, this paper derives the optimal discretionary policy under hidden information. So far, these issues have only been analyzed in stylized, and often static models.

Looking at Markov perfect policies excludes explicit reputational concerns via history dependent strategies. But when there is imperfect information, people's beliefs are an endogenous, Markov perfect state variable and the management of beliefs becomes an integral part of policy: Optimal discretionary policy is conscious about its information effects. The outcomes share similarities with those from commitment models.

In the context of a simple New Keynesian model, inflationary beliefs are fought more aggressively and disinflations pursued more vigorously the larger the credibility problems from hidden information. Moreover, optimal policy responds to belief shocks, which shift public perceptions about fundamentals even when those fundamentals are unchanged.

Web site of the seminar (with paper online): http://www.hec.unil.ch/deep/evenements-english/e-sem-all-2007-08.htm

eptembre 2007, 12h15
Internef, salle 123

Francesco FURLANETTO
(CREI, Barcelona and Norges Bank, Oslo)

Rule-of-thumb Consumers
and the Business Cycle

Abstract

In this paper we study the transmission mechanism of productivity shocks in a model with rule-of-thumb consumers. In the literature, this financial friction has been studied only with reference to fiscal shocks. As a consistency exercise we show that the presence of rule-of-thumb consumers is very helpful also in accounting for recent influential empirical evidence on productivity shocks. Rule-of-thumb agents, together with nominal and real rigidities, play an important role in explaining the negative reponse of hours and the zero reponses of output and consumption after a productivity shock.

Site web du séminaire (avec texte en ligne): http://www.hec.unil.ch/deep/evenements/Brownbag2007-08.htm