Mankiw and Reis (p.1306, 2003, QJE) :
"In the sticky-price model, the announced disinflation causes a boom. As Ball [1994a] emphasizes, inflation in this model moves in anticipation of demand. When price setters anticipate a slowdown in money growth, inflation falls immediately. This fall in inflation, together with continued increases in the money supply, leads to rising real money balances and higher output. "
Not in the same token, but is it at least half as surprising to observe that an announcement in future productivity growth causes a recession, up to the period before the productivity growth gets realized? Or does it even make sense that an announcement of good news in the future cause a current downturn?
Empirically, news in tax increases typically lead to a short downturn but a lasting boom. (RR 2009) This result is also not easily conceivable.
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Hello, Hyun. Found you via our common profile interest, macroeconomics.
ReplyDeleteConsumer confidence, business confidence, animal spirits -- these things are surely important to economic performance. But they are not the only things.
Economists seem more and more to dismiss the usefulness of monetary and fiscal policy. I think those policies don't work because they have been misunderstood and misused. I think the rejection of those policies is just the next step in misunderstanding and misuse.
Art