Working Paper: CEPR ID: DP7644
Authors: Fabrice Collard; Harris Dellas
Abstract: We revisit the contribution of misperceived money to business cycles, and in particular to the inertial dynamics of inflation following a monetary policy shock. We establish three things. First, the difference between preliminary and revised money data captures monetary misperceptions well. Second, misperceived money is quantitatively substantial and also matters significantly for economic activity. And third, imperfect information about monetary aggregates can help the standard NK model exhibit inertial inflation dynamics.
Keywords: Inflation; Inertia; Measurement Error; Monetary Misperceptions
JEL Codes: E32; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| misperceived money (E41) | economic activity (E20) |
| misperceived money (E41) | inflation dynamics (E31) |
| misperceived money shocks (E39) | economic activity (E20) |
| unanticipated money shocks (E39) | economic activity (E20) |
| imperfect information about monetary aggregates (E19) | inflation inertia (E31) |
| misperceived money (E41) | New Keynesian model dynamics (E12) |