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Optimal Monetary Policy in Response to Supply Inflation : the Impact of Central Bank Communication

Author

Listed:
  • Romain Baeriswyl

    (Swiss National Bank - Swiss National Bank, LMU - Ludwig Maximilian University [Munich] = Ludwig Maximilians Universität München)

  • Camille Cornand

    (BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique)

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.

Suggested Citation

  • Romain Baeriswyl & Camille Cornand, 2010. "Optimal Monetary Policy in Response to Supply Inflation : the Impact of Central Bank Communication," Post-Print halshs-01704183, HAL.
    • Handle: RePEc:hal:journl:halshs-01704183
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    Cited by:

    1. 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.
    2. Anna Agliari & Domenico Massaro & Nicolò Pecora & Alessandro Spelta, 2017. "Inflation Targeting, Recursive Inattentiveness, and Heterogeneous Beliefs," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 49(7), pages 1587-1619, October.
    3. Salle, Isabelle L., 2015. "Modeling expectations in agent-based models — An application to central bank's communication and monetary policy," Economic Modelling, Elsevier, vol. 46(C), pages 130-141.

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