Monetary policy and private sector misperceptions about the natural level of output

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Monetary policy and private sector misperceptions about the natural level of output

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Jarkko Jääskelä
Jack McKeown

Abstract

In this paper we illustrate, using a simple model of monetary policy, the welfare costs of the private sector and/or the central bank being uncertain about the natural level of output. It turns out that monetary policy strategies that put less weight on output stabilisation can offset some of these welfare costs.

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Paper provided by Bank of England in its series Bank of England working papers with number 279.

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Handle: RePEc:boe:boeewp:279

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This paper has been announced in the following NEP Reports:

NEP-ALL-2006-09-30 (All new papers)
NEP-CBA-2006-09-30 (Central Banking)
NEP-MAC-2006-09-30 (Macroeconomics)
NEP-MON-2006-09-30 (Monetary Economics)

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Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121. [Downloadable!] (restricted)
Other versions:
- Robert J. Barro & David B. Gordon, 1984. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November. [Downloadable!] (restricted)
Bordo, Michael D & Jeanne, Olivier, 2002. "Boom-Busts in Asset Prices, Economic Instability and Monetary Policy," CEPR Discussion Papers 3398, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Other versions:
- Michael D. Bordo & Olivier Jeanne, 2002. "Boom-Busts in Asset Prices, Economic Instability, and Monetary Policy," NBER Working Papers 8966, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Ben S. Bernanke & Mark Gertler, 2001. "Should Central Banks Respond to Movements in Asset Prices?," American Economic Review, American Economic Association, vol. 91(2), pages 253-257, May. [Downloadable!] (restricted)
Athanasios Orphanides & John C. Williams, 2003. "Imperfect Knowledge, Inflation Expectations, and Monetary Policy," NBER Working Papers 9884, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Athanasios Orphanides & John C. Williams, 2002. "Imperfect knowledge, inflation expectations, and monetary policy," Working Papers in Applied Economic Theory 2002-04, Federal Reserve Bank of San Francisco. [Downloadable!]
- Athanasios Orphanides & John C. Williams, 2003. "Imperfect Knowledge, Inflation Expectations, and Monetary Policy," CFS Working Paper Series 2003/40, Center for Financial Studies. [Downloadable!]
- Athanasios Orphanides & John C. Williams, 2002. "Imperfect knowledge, inflation expectations, and monetary policy," Finance and Economics Discussion Series 2002-27, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
- Athanasios Orphanides & John Williams, 2004. "Imperfect Knowledge, Inflation Expectations, and Monetary Policy," NBER Chapters, in: The Inflation-Targeting Debate, pages 201-246 National Bureau of Economic Research, Inc. [Downloadable!]
Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August. [Downloadable!] (restricted)
Other versions:
- Robert J. Barro & David B. Gordon, 1983. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Canzoneri, Matthew B, 1985. "Monetary Policy Games and the Role of Private Information," American Economic Review, American Economic Association, vol. 75(5), pages 1056-70, December. [Downloadable!] (restricted)
Other versions:
- Matthew B. Canzoneri, 1983. "Monetary policy games and the role of private information," International Finance Discussion Papers 249, Board of Governors of the Federal Reserve System (U.S.).
Charles R. Bean, 2004. "Asset Prices, Financial Instability, and Monetary Policy," American Economic Review, American Economic Association, vol. 94(2), pages 14-18, May. [Downloadable!]

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