Data and Code for: Monetary Policy with Opinionated Markets

Principal Investigator(s): View help for Principal Investigator(s) Ricardo Caballero, MIT; Alp Simsek, Yale School of Management

Version: View help for Version V1

Name	File Type	Size	Last Modified
Empirics			04/14/2022 01:47:PM
Numerical exercises			04/14/2022 01:47:PM
README.pdf	application/pdf	100.9 KB	04/14/2022 09:44:AM

Project Citation:

Caballero, Ricardo, and Simsek, Alp. Data and Code for: Monetary Policy with Opinionated Markets. Nashville, TN: American Economic Association [publisher], 2022. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2022-06-21. https://doi.org/10.3886/E159301V1

Project Description

Summary: We build a model in which the Fed and the market disagree about future aggregate demand. The market anticipates monetary policy "mistakes," which affect current demand and induce the Fed to partially accommodate the market's view. The Fed expects to implement its view gradually. Announcements that reveal an unexpected change in the Fed's belief provide a microfoundation for monetary policy shocks. Tantrum shocks arise when the market misinterprets the Fed's belief and overreacts to its announcement. Uncertainty about tantrums motivates further gradualism and communication. Finally, disagreements affect the market's expected inflation and induce a policy trade-off similar to "cost-push" shocks.

Scope of Project

JEL Classification:
      E00 Macroeconomics and Monetary Economics: General
      E12 General Aggregative Models: Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
      E21 Macroeconomics: Consumption; Saving; Wealth
      E32 Business Fluctuations; Cycles
      E43 Interest Rates: Determination, Term Structure, and Effects
      E44 Financial Markets and the Macroeconomy
      G11 Portfolio Choice; Investment Decisions
      G12 Asset Pricing; Trading Volume; Bond Interest Rates

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Published Versions

V1 [2022-06-21]

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