A closed-form analysis of anticipated monetary policy

Abstract

In this short study, we use a simple new Keynesian model and carry out a closed-form analysis to observe the effects of anticipated monetary policy. For the assumed parameter space, we find that while an anticipated monetary easing always has inflationary effects, the effects on output depend on the parametric value of inflationary response to an interest-rate rule. If this parameter were low, an anticipated monetary easing would have a positive effect on output. However, if the parameter were sufficiently high, the policy would have a negative impact on output.

Keywords

• DSGE model
• Closed form
• Anticipated monetary policy