De Grauwe, Paul;
Ji, Yuemei;
(2022)
On the use of current and forward-looking data in monetary policy: a behavioural macroeconomic approach.
Oxford Economic Papers
, Article gpac024. 10.1093/oep/gpac024.
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Abstract
We analyse the question of whether the use of forward-looking data in monetary policy is to be preferred over the use of current data. We use a behavioural macroeconomic model that generates periods of tranquillity alternating with crisis periods characterized by fat tails in the distribution of output gap. We find that in a strict inflation targeting (SIT) regime, the use of forward-looking data leads to a lower quality of monetary policymaking than in a dual mandate monetary policy regime, because the first regime creates more extreme movements in output and inflation than the second one. We also find that nowcasting tends to improve the quality of monetary policy, especially in a SIT regime. Finally, we provide a case study of monetary policies in the USA and the eurozone during 2000–20.
| Type: | Article |
|---|---|
| Title: | On the use of current and forward-looking data in monetary policy: a behavioural macroeconomic approach |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.1093/oep/gpac024 |
| Publisher version: | https://doi.org/10.1093/oep/gpac024 |
| Language: | English |
| Additional information: | © Oxford University Press 2022. This is an Open Access article distributed under the terms of the Creative Commons Attribution License (https://creativecommons.org/licenses/by/4.0/), which permits unrestricted reuse, distribution, and reproduction in any medium, provided the original work is properly cited. |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL SLASH > SSEES UCL > Provost and Vice Provost Offices > UCL SLASH |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10152158 |
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