Endogenous Monetary Policy Credibility in a Small Macro Model of Israel

By Eyal Argov, David Rose, Philippe D Karam, Natan P. Epstein, Douglas Laxton

August 1, 2007

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Format: Chicago

Eyal Argov, David Rose, Philippe D Karam, Natan P. Epstein, and Douglas Laxton. Endogenous Monetary Policy Credibility in a Small Macro Model of Israel, (USA: International Monetary Fund, 2007) accessed December 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper extends a small linear model of the Israeli economy to allow for nonlinearities in the inflation-output process that arise from convexity in the Phillips curve and endogenous monetary policy credibility. We find that the dynamic responses to shocks in the extended model more closely resemble features in the data from the period 2001?03. In particular, the extended model does a much better job in accounting for the deterioration in monetary policy credibility and the output costs of regaining monetary policy credibility once it has been lost.

Subject: Central bank policy rate, Exchange rates, Inflation, Inflation targeting, Output gap

Keywords: Exchange rate, WP

Publication Details

Pages:

33
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2007/207
Stock No:

WPIEA2007207
ISBN:

9781451867718
ISSN:

1018-5941

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