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Figuring Out the Fed—Beliefs about Policymakers and Gains from Transparency

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  • CHRISTIAN MATTHES

Abstract

In this paper, I use a Markov chain Monte Carlo algorithm to estimate a model of private‐sector behavior that does not feature private‐sector knowledge of the monetary policymaking process and, instead, leaves firms and households uncertain about how monetary policy is set. The private sector entertains two competing views of monetary policymaking, which I estimate. Firms and households use Bayes' law on a rolling data sample to distinguish between those two models. I use this setup to study the evolution of beliefs about the Federal Reserve and the possible gains from transparency.

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  • Christian Matthes, 2015. "Figuring Out the Fed—Beliefs about Policymakers and Gains from Transparency," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(1), pages 1-29, February.
    • Handle: RePEc:wly:jmoncb:v:47:y:2015:i:1:p:1-29
    DOI: 10.1111/jmcb.12167
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    Cited by:

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    2. Chatelain, Jean-Bernard & Ralf Kirsten, 2016. "Countercyclical versus Procyclical Taylor Principles," EconStor Preprints 129796, ZBW - Leibniz Information Centre for Economics.
    3. Lu, Yang K. & King, Robert G. & Pasten, Ernesto, 2016. "Optimal reputation building in the New Keynesian model," Journal of Monetary Economics, Elsevier, vol. 84(C), pages 233-249.
    4. Liu, Ding & Zhang, Yue & Sun, Weihong, 2020. "Commitment or discretion? An empirical investigation of monetary policy preferences in China," Economic Modelling, Elsevier, vol. 85(C), pages 409-419.
    5. Davide Debortoli & Aeimit Lakdawala, 2016. "How Credible Is the Federal Reserve? A Structural Estimation of Policy Re-optimizations," American Economic Journal: Macroeconomics, American Economic Association, vol. 8(3), pages 42-76, July.
    6. Matthes, Christian & Rondina, Francesca, 2017. "Two-sided learning and short-run dynamics in a New Keynesian model of the economy," Economics Letters, Elsevier, vol. 159(C), pages 53-56.
    7. Robert G. King & Yang K. Lu, 2020. "Managing Expectations in the New Keynesian Model," HKUST CEP Working Papers Series 202007, HKUST Center for Economic Policy.

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