The loss from uncertainty on policy targets
AbstractWhat is the welfare loss arising from uncertainty about true policy targets? We quantify these effects in a DSGE model where private agents are unable to distinguish between temporary shocks to potential output and to the inßation target. Agents use optimal Þltering techniques to construct estimates of the unknown variables. We Þnd that the welfare costs of not observing the inßation target and potential output are relevant even in the case of a small measurement error. We also show that, in our framework, uncertainty about the inßation target is more costly than uncertainty about potential output.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Dipartimento di Economia e Finanza, LUISS Guido Carli in its series Working Papers CASMEF with number 1104.
Date of creation: 2011
Date of revision:
Monetary Policy; Kalman Filter; Potential Output.;
Other versions of this item:
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-06-25 (All new papers)
- NEP-CBA-2011-06-25 (Central Banking)
- NEP-DGE-2011-06-25 (Dynamic General Equilibrium)
- NEP-MAC-2011-06-25 (Macroeconomics)
- NEP-MON-2011-06-25 (Monetary Economics)
You can help add them by filling out this form.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- The welfare gain from inflation targeting
by Economic Logician in Economic Logic on 2011-07-13 14:29:00
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Stefano Marzioni).
If references are entirely missing, you can add them using this form.