In noise we trust? Optimal monetary policy with random targets

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In noise we trust? Optimal monetary policy with random targets

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Ethan Cohen-Cole
Bogdan Cosmaciuc

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Ethan Cohen-Cole

Abstract

We show that a monetary policy in which the central bank commits to a randomized inflation target allows for potentially faster-expectations convergence than with a fixed target. The randomized target achieves faster convergence in particular in transition environments: those demonstrating either particularly high or low inflation. ; Quantitative Analysis Unit Working Paper QAU07-1

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Paper provided by Federal Reserve Bank of Boston in its series Working Papers with number 06-14.

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Date of creation: 2006
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Handle: RePEc:fip:fedbwp:06-14

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This paper has been announced in the following NEP Reports:

NEP-ALL-2006-12-16 (All new papers)
NEP-CBA-2006-12-16 (Central Banking)
NEP-MON-2006-12-16 (Monetary Economics)

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Other versions:
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