The Signal Extraction Problem Revisited: Its Impact on a Model of Monetary Policy∗
نویسنده
چکیده
This paper develops a dynamic stochastic general equilibrium (DSGE) model with sticky prices where agents have imperfect information on the stance and direction of monetary policy. Agents respond by using Kalman filtering to unravel persistent and temporary monetary policy changes in order to form optimal forecasts of future policy actions. Our results show that a sticky price model with imperfect information can account for several key effects of an expansionary monetary policy shock: the delayed and gradual increase in inflation, the large and persistent increase in output, the fall in the nominal interest rate, and the modest rise in the real wage. JEL Classification: E31; E32; E52.
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