DP7644 Monetary Misperceptions, Output and Inflation Dynamics

Author(s): Fabrice Collard, Harris Dellas
Publication Date: January 2010
Keyword(s): inflation inertia, measurement error, Monetary misperceptions
JEL(s): E32, E52
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7644

We revisit the contribution of misperceived money to business cycles, and in particular to the inertial dynamics of inflation following a monetary policy shock. We establish three things. First, the difference between preliminary and revised money data captures monetary misperceptions well. Second, misperceived money is quantitatively substantial and also matters significantly for economic activity. And third, imperfect information about monetary aggregates can help the standard NK model exhibit inertial inflation dynamics.