Working Paper: NBER ID: w14902
Authors: Stefan Lasen; Lars E.O. Svensson
Abstract: This paper specifies a new convenient algorithm to construct policy projections conditional on alternative anticipated policy-rate paths in linearized dynamic stochastic general equilibrium (DSGE) models, such as Ramses, the Riksbank's main DSGE model. Such projections with anticipated policy-rate paths correspond to situations where the central bank transparently announces that it, conditional on current information, plans to implement a particular policy-rate path and where this announced plan for the policy rate is believed and then anticipated by the private sector. The main idea of the algorithm is to include among the predetermined variables (the "state" of the economy) the vector of nonzero means of future shocks to a given policy rule that is required to satisfy the given anticipated policy-rate path.
Keywords: policy projections; DSGE models; central bank; policy rate paths
JEL Codes: E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| anticipated policy rate paths (E52) | economic outcomes (F61) |
| Central bank's announcement of planned policy rate path (E52) | private sector expectations (E69) |
| anticipated shocks (D84) | economy's response to policy changes (E65) |
| anticipated restrictions (Y20) | unique equilibrium (C62) |
| anticipated restrictions vs unanticipated restrictions (D84) | similar results (C59) |
| anticipated restrictions (Y20) | more pronounced effect (C92) |
| nominal policy rates and real policy rates (E43) | unusual equilibria (D59) |
| inflation sensitivity to real policy rate (E31) | monetary policy effectiveness (E52) |