Neues BERG Working Paper Nr. 161 von Christian R. Proaño and Benjamin Lojak erschienen!

In der BERG Working Paper Series wurde von Christian R. Proaño and Benjamin Lojak ein neues Papier mit dem Titel Monetary Policy with a State-Dependent Inflation Target in a Behavioral Two-Country Monetary Union Model“ veröffentlicht.

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In this paper we study the implementation of a state-dependent inflation target in a two-country monetary union model characterized by boundedly rational agents. In par- ticular, we use the spread between the actual policy rate (which is constrained by the zero-lower-bound) and the Taylor rate (which can become negative) as a measure for the degree of ineffectiveness of conventional monetary policy as a stabilizing mechanism. The perception of macroeconomic risk by the agents is assumed to vary according to this mea- sure by means of the Brock-Hommes switching mechanism. Our numerical simulations indicate a) that a state-dependent inflation target may lead to a better macroeconomic and inflation stabilization, and b) the perceived risk-sharing among the monetary union members influences the financing conditions of the member economies of the monetary union.