The loss from uncertainty on policy targets

Giorgio Di Giorgio and Guido Traficante

No 1104, Working Papers CASMEF from Dipartimento di Economia e Finanza, LUISS Guido Carli

Abstract: What 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.

Keywords: Monetary Policy; Kalman Filter; Potential Output. (search for similar items in EconPapers)
JEL-codes: E37 E5 E52 E58 (search for similar items in EconPapers)
Date: 2011
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:

Downloads: (external link)
http://static.luiss.it/RePEc/pdf/casmef/1104.pdf (application/pdf)

Related works:
Journal Article: The loss from uncertainty on policy targets (2013)
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:lui:casmef:1104

Access Statistics for this paper

More papers in Working Papers CASMEF from Dipartimento di Economia e Finanza, LUISS Guido Carli Contact information at EDIRC.
Bibliographic data for series maintained by Pierluigi Murro ().