LEARNING, UNCERTAINTY AND CENTRAL BANK ACTIVISM IN AN ECONOMY WITH STRATEGIC INTERACTIONS

Martin Ellison and Natacha Valla

No 183, Computing in Economics and Finance 2000 from Society for Computational Economics

Abstract: In this paper we examine the optimal level of central bank activism in a standard model of monetary policy with uncertainty, learning and strategic interactions. We calibrate the model using G7 data and find that the presence of strategic interactions between the central bank and private agents implies that optimality unambiguously recommends caution in monetary policy. An active policy designed to help learning and reduce future uncertainty creates extra volatility in inflation expectations and is detrimental to welfare.

Date: 2000-07-05
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Related works:
Journal Article: Learning, uncertainty and central bank activism in an economy with strategic interactions (2001)
Working Paper: Learning, uncertainty and central bank activism in an economy with strategic interactions (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:sce:scecf0:183

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