Monetary policy and inflationary shocks under imperfect credibility
AbstractThis paper quantifies the deterioration of achievable tabilization outcomes when monetary policy operates under imperfect credibility and weak anchoring of long-term expectations. Within a medium-scale DSGE model, we introduce through a simple signal extraction problem, an imperfect knowledge configuration where rice and wage setters wrongly doubt about the determination of the central bank to leave unchanged its long-term inflation objective in the face of inflationary shocks. The magnitude of private sector learning has been calibrated to match the volatility of US inflation expectations at long horizons. Given such illustrative calibrations, we find that the costs of aintaining a given inflation volatility under weak credibility could amount to 0.25 pp of output gap standard deviation. JEL Classification: E4, E5, F4
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Bibliographic InfoPaper provided by European Central Bank in its series Working Paper Series with number 1065.
Date of creation: Jun 2009
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Other versions of this item:
- Darracq Pariès, Matthieu & Moyen, Stéphane, 2012. "Monetary policy and inflationary shocks under imperfect credibility," Economics Letters, Elsevier, vol. 116(3), pages 571-574.
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-08-08 (All new papers)
- NEP-CBA-2009-08-08 (Central Banking)
- NEP-DGE-2009-08-08 (Dynamic General Equilibrium)
- NEP-MAC-2009-08-08 (Macroeconomics)
- NEP-MON-2009-08-08 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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[The implications of single monetary policy in sustaining European financial integration]," MPRA Paper 29147, University Library of Munich, Germany.
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