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Optimal Monetary Policy in Response to Cost-Push Shocks: The Impact of Central Bank Communication

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  • Romain Baeriswyl

    (Munich Graduate School of Economics and Swiss National Bank)

  • Camille Cornand

    (BETA CNRS–University of Strasbourg)

Abstract

This paper argues that a central bank’s optimal policy in response to a cost-push shock depends upon its disclosure regime. More precisely, a credible central bank may find it optimal to implement an accommodative monetary policy in response to a positive cost-push shock whenever the uncertainty surrounding its monetary instrument is high. Indeed, the degree of the central bank’s transparency influences the effectiveness of its policy to stabilize inflation in terms of output gap. The effectiveness, in turn, determines whether it will implement an expansionary or contractionary policy in response to a positive cost-push shock.

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Bibliographic Info

Article provided by International Journal of Central Banking in its journal International Journal of Central Banking.

Volume (Year): 6 (2010)
Issue (Month): 2 (June)
Pages: 31-52

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Handle: RePEc:ijc:ijcjou:y:2010:q:2:a:2

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Cited by:
  1. Isabelle SALLE & Marc-Alexandre SENEGAS & Murat YILDIZOGLU, 2013. "How Transparent About Its Inflation Target Should a Central Bank be? An Agent-Based Model Assessment," Cahiers du GREThA 2013-24, Groupe de Recherche en Economie Théorique et Appliquée.
  2. repec:spo:wpecon:info:hdl:2441/f4rshpf3v1umfa09lat09b1bg is not listed on IDEAS
  3. Salle, Isabelle & Yıldızoğlu, Murat & Sénégas, Marc-Alexandre, 2013. "Inflation targeting in a learning economy: An ABM perspective," Economic Modelling, Elsevier, vol. 34(C), pages 114-128.
  4. Paul Hubert, 2010. "Monetary Policy, Imperfect Information and the Expectations Channel," Sciences Po publications info:hdl:2441/f4rshpf3v1u, Sciences Po.

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