Ambiguity, Monetary Policy and Trend Inflation

Riccardo M. Masolo and Francesca Monti

No 1709, Discussion Papers from Centre for Macroeconomics (CFM)

Abstract: Allowing for ambiguity, or Knightian uncertainty, about the behavior of the policy-maker helps explain the evolution of trend inflation in the US in a simple new-Keynesian model, without resorting to exogenous changes in the inflation target. Using Blue Chip survey data to gauge the degree of private sector confidence, our model helps reconcile the difference between target inflation and the inflation trend measured in the data. We also show how, in the presence of ambiguity, it is optimal for policymakers to lean against the private sectors pessimistic expectations.

Keywords: Ambiguity Aversion; Monetary Policy; Trend Inflation (search for similar items in EconPapers)
JEL-codes: D84 E31 E43 E52 E58 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2017-02
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Ambiguity, Monetary Policy and Trend Inflation (2021)
Working Paper: Ambiguity, monetary policy and trend inflation (2017)
Working Paper: Ambiguity, Monetary Policy and Trend Inflation (2017)
Working Paper: Ambiguity, monetary policy and trend inflation (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:cfm:wpaper:1709

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