Masolo, Riccardo M. and Monti, Francesca
(2017)
Ambiguity, monetary policy and trend inflation.
CFM discussion paper series (CFM-DP2017-09).
Centre For Macroeconomics, London, UK.
Abstract
Allowing for ambiguity, or Knightian uncertainty, about the behavior of the policymaker helps explain the evolution of trend inflation in the US in a simple new-Keynesian model, without resorting to exogenous changes in the inflation target. Using Blue Chip survey data to gauge the degree of private sector confidence, our model helps reconcile the difference between target inflation and the inflation trend measured in the data. We also show how, in the presence of ambiguity, it is optimal for policymakers to lean against the private sectors pessimistic expectations.
Item Type: |
Monograph
(Discussion Paper)
|
Official URL: |
http://www.centreformacroeconomics.ac.uk/Home.aspx |
Additional Information: |
© 2017 The Authors |
Divisions: |
Centre for Macroeconomics |
Subjects: |
H Social Sciences > HB Economic Theory |
JEL classification: |
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D84 - Expectations; Speculations E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level; Inflation; Deflation E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Determination of Interest Rates; Term Structure of Interest Rates E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy (Targets, Instruments, and Effects) E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies |
Date Deposited: |
12 Dec 2017 10:33 |
Last Modified: |
16 May 2024 12:12 |
URI: |
http://eprints.lse.ac.uk/id/eprint/86165 |
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