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EnglishWe extend Svensson's (Svensson, 1997) model of optimal monetary policy to the case in which the monetary authorities are pessimistic. With respect to his formulation we show that: i) the inflation forecast is no longer an explicit intermediate target; ii) the monetary authorities move their instruments to hedge against the worst economic shocks, do not expect the inflation rate to mean revert to its first-best level and apply a more aggressive Taylor rule; and iii) the inflation rate is less volatile. Our conclusions also hold when the monetary authorities observe inflation and output gap with a time lag. Our analysis extends the analysis of van der Ploeg (van der Ploeg, 2009), as we allow for time-discounting of future social welfare losses due to deviations of output and inflation from first-best values.
| Titolo: | Optimal Monetary Policy for a Pessimistic Central Bank | |
| Autori: | ||
| Data di pubblicazione: | 2014 | |
| Abstract: | We extend Svensson's (Svensson, 1997) model of optimal monetary policy to the case in which the monetary authorities are pessimistic. With respect to his formulation we show that: i) the inflation forecast is no longer an explicit intermediate target; ii) the monetary authorities move their instruments to hedge against the worst economic shocks, do not expect the inflation rate to mean revert to its first-best level and apply a more aggressive Taylor rule; and iii) the inflation rate is less volatile. Our conclusions also hold when the monetary authorities observe inflation and output gap with a time lag. Our analysis extends the analysis of van der Ploeg (van der Ploeg, 2009), as we allow for time-discounting of future social welfare losses due to deviations of output and inflation from first-best values. | |
| Handle: | http://hdl.handle.net/11564/588908 | |
| Appare nelle tipologie: | 3.9 Monografia senza ISBN |
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