The neo-Fisher effect and the central bank information (CBI) effect produce similar outcomes: under both, a monetary tightening triggers an increase in inflation and an expansion in real activity. Separate estimates of these effects run the risk of confounding one with the other. To disentangle these two channels, we introduce into a new-Keynesian model a permanent monetary shock that generates neo-Fisher effects and an aggregate demand shock to which the central bank responds that creates CBI effects. We estimate the model on U.S. data. We find that the neo-Fisherian shock is an important driver of inflation, while the CBI shock explains a significant fraction of movements in the nominal interest rate. The CBI shock explains little of inflation and output, but, through counterfactual exercises, we establish that this reflects the central bank's success in isolating the economy from aggregate demand disturbances. These results are shown to hold under full and imperfect information.
Authors
- Acknowledgements & Disclosure
- The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
- DOI
- https://doi.org/10.3386/w33136
- Pages
- 31
- Published in
- United States of America
Table of Contents
- NBER WORKING PAPER SERIES 1
- CENTRAL BANK INFORMATION OR NEO-FISHER EFFECT 1
- Stephanie Schmitt-Grohé Martín Uribe 1
- Working Paper 33136 httpwww.nber.orgpapersw33136 1
- NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge MA 02138 November 2024 1
- The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. 1
- Central Bank Information or Neo-Fisher Effect Stephanie Schmitt-Grohé and Martín Uribe NBER Working Paper No. 33136 November 2024 JEL No. E3 E5 2
- Stephanie Schmitt-Grohé Department of Economics Columbia University 420 West 118th Street MC 3308 New York NY 10027 and NBER stephanie.schmittgrohecolumbia.edu 2
- Martín Uribe Department of Economics Columbia University International Affairs Building New York NY 10027 and NBER martin.uribecolumbia.edu 2
- 1 Introduction 3
- 2 The Model 5
- 2.1 Households 5
- 2.2 Firms 7
- 2.3 Monetary and Fiscal Policy 9
- 2.4 Driving Forces 10
- 2.5 Market Clearing 11
- 2.6 Equilibrium Conditions in Stationary Form 11
- 3 Signal Extraction 14
- 4 Estimation 17
- 5 Results 21
- 5.1 Full Information 21
- 5.2 Imperfect Information 26
- 6 Conclusion 27
- References 29
