Template-type: ReDIF-Paper 1.0
Author-Name: Federico Favaretto
Author-Name: Donato Masciandaro
Title: Too Little, Too Late? Monetary Policymaking Inertia and Psychology: A Behavioral Model 
Abstract: Can the inertia in the monetary policymaking be attributed to psychological drivers? Our model shows two results. First, our baseline model with individual loss aversion explains inertia in a monetary policy committee (MPC) where holds a de jure majority rule. Second, our second model shows that introducing a specification of loss aversion for all members in a MPC leads to inertial decisions when status-quo ination is below the ination target. Conversely when status-quo ination is above the target rate, inertial policy does not occur until the level of ination discounts the loss aversion mechanism. In the framework of a hawk-dove dimension we conclude that loss aversion favors inertial monetary policy.  
Classification-JEL: D7, E5
Keywords: Monetary Policy, Behavioral Economics 
Length: 17 
Number: 1617
Creation-Date: 2016
File-URL: https://repec.unibocconi.it/baffic/baf/papers/cbafwp1617.pdf
File-Format: application/pdf
File-Size: 308
Handle: RePEc:baf:cbafwp:cbafwp1617