TY  - JOUR
AU  - Davig, Troy
AU  - Leeper, Eric M
TI  - Endogenous Monetary Policy Regime Change
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12405
PY  - 2006
Y2  - August 2006
DO  - 10.3386/w12405
UR  - http://www.nber.org/papers/w12405
L1  - http://www.nber.org/papers/w12405.pdf
N1  - Author contact info:
Troy Davig
Research Department
Federal Reserve Bank of Kansas City
Kansas City, MO 64198
E-Mail: tdavig@gmail.com

Eric M. Leeper
Department of Economics
University of Virginia
248 McCormick Rd
Charlottesville, VA 22903
Tel: 434-924-3933
E-Mail: eml3jf@virginia.edu
M1  - published as Troy Davig, Eric M. Leeper. "Endogenous Monetary Policy Regime Change," in Lucrezia Reichlin and Kenneth West, organizers, "NBER International Seminar on Macroeconomics 2006" University of Chicago Press (2008)

AB  - This paper makes changes in monetary policy rules (or regimes) endogenous. Changes are triggered when certain endogenous variables cross specified thresholds. Rational expectations equilibria are examined in three models of threshold switching to illustrate that (i) expectations formation effects generated by the possibility of regime change can be quantitatively important; (ii) symmetric shocks can have asymmetric effects; (iii) endogenous switching is a natural way to formally model preemptive policy actions. In a conventional calibrated model, preemptive policy shifts agents' expectations, enhancing the ability of policy to offset demand shocks; this yields a quantitatively significant "preemption dividend."
ER  -