2025 North American Winter Meeting, San Francisco, CA: January, 2025
The Power of Open-Mouth Policies
Vadym Lepetyuk, Lilia Maliar, Serguei Maliar
Central banks’ announcements about future monetary policy make economic agents to react before
the announced policy takes place. We evaluate the anticipation eects of such announcements in a
realistically calibrated prototypical central banking model. We consider temporary and permanent
anticipated changes in policy rules including in ation target and Taylor-rule coecients, as well as
anticipated switches from in ation targeting to price-level targeting and average-in ation targeting,
and we find economically significant effects. Our methodological contribution is to develop a novel
perturbation-based extended function path (EFP) framework for constructing nonstationary solutions
(time-dependent decision functions) to economic models with anticipated non-Markov news shocks.
the announced policy takes place. We evaluate the anticipation eects of such announcements in a
realistically calibrated prototypical central banking model. We consider temporary and permanent
anticipated changes in policy rules including in ation target and Taylor-rule coecients, as well as
anticipated switches from in ation targeting to price-level targeting and average-in ation targeting,
and we find economically significant effects. Our methodological contribution is to develop a novel
perturbation-based extended function path (EFP) framework for constructing nonstationary solutions
(time-dependent decision functions) to economic models with anticipated non-Markov news shocks.
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