The authors find that policy shifts have larger effects on actual output than on expected output, suggesting that agents underestimate the effects of policy on aggregate demand. Their results help explain the real effects of monetary policy, and they provide negative evidence on the rationality of expectations.
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Working Paper
Expectations and the Effects of Monetary Policy
June 1998
WP 98-13 – This paper examines the predictive power of shifts in monetary policy, as measured by changes in the real federal funds rate, for output, inflation, and survey expectations of these variables.
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