Probing potential output: Monetary policy, credibility, and optimal learning under uncertainty
Abstract
The effective conduct of monetary policy is hampered by uncertainty surrounding the level of potential output. Here, the case for following a more aggressive policy to learn about the economy is considered in a model where potential output is changing over time. Following such a policy may be referred to as probing or experimenting.In this model, with parameters calibrated to recent Canadian data, the optimal amount of probing is small and increases only a little with credibility. Only for unrealistically large amounts of uncertainty does the optimal policy with probing diverge significantly from a policy that ignores learning, and even then, for most forms of uncertainty, the optimal amount of probing diminishes as credibility rises.(This abstract was borrowed from another version of this item.)
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Bibliographic Info
Article provided by Elsevier in its journal Journal of Macroeconomics.
Volume (Year): 25 (2003)
Issue (Month): 3 (September)
Pages: 311-330
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Web page: http://www.elsevier.com/locate/inca/622617
Related research
Keywords:Other versions of this item:
- Yetman, James, 2000. "Probing Potential Output: Monetary Policy, Credibility, and Optimal Learning under Uncertainty," Working Papers 00-10, Bank of Canada.
- James Yetman, 2000. "Probing Potential Output: Monetary Policy, Credibility And Optimal Learning Under Uncertainty," Computing in Economics and Finance 2000 181, Society for Computational Economics.
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Tesfaselassie, M.F. & Schaling, E. & Eijffinger, S.C.W., 2006.
"Learning About the Term Structure and Optimal Rules for Inflation Targeting,"
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ERS-2006-058-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
- Mewael F. Tesfaselassie & Eric Schaling & Sylvester Eijffinger, 2011. "Learning about the Term Structure and Optimal Rules for Inflation Targeting," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(8), pages 1685-1706, December.
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