Ambiguity, monetary policy and trend inflation

Riccardo M. Masolo and Francesca Monti

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Allowing for ambiguity, or Knightian uncertainty, about the behavior of the policymaker 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: 85 pages
Date: 2017-02-06
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://eprints.lse.ac.uk/86165/ Open access version. (application/pdf)

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)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:86165

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().