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In noise we trust? Optimal monetary policy with random targets

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  • Ethan Cohen-Cole
  • Bogdan Cosmaciuc

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

Suggested Citation

  • Ethan Cohen-Cole & Bogdan Cosmaciuc, 2006. "In noise we trust? Optimal monetary policy with random targets," Working Papers 06-14, Federal Reserve Bank of Boston.
  • Handle: RePEc:fip:fedbwp:06-14
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    References listed on IDEAS

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