Uncertainty about Perceived Inflation Target and Monetary Policy

Kosuke Aoki and Takeshi Kimura
Additional contact information
Kosuke Aoki: London School of Economics and Political Science

No 07-E-16, Bank of Japan Working Paper Series from Bank of Japan

Abstract: We analyse the interaction between private agents' uncertainty about inflation target and the central bank's data uncertainty. In our model, private agents update their perceived inflation target and the central bank estimates unobservable economic shocks as well as the perceived inflation target. Under those two uncertainties, the learning process of both private agents and the central bank causes higher order beliefs to become relevant, and this mechanism is capable of generating high persistence and volatility of inflation even though the underlying shocks are purely transitory. We also find that the persistence and volatility become smaller as the inflation target becomes more credible, that is, the private agents' uncertainty about inflation target (and hence the bank's data uncertainty) diminishes.

Date: 2007-07
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.boj.or.jp/en/research/wps_rev/wps_2007/data/wp07e16.pdf (application/pdf)

Related works:
Working Paper: Uncertainty about perceived inflation target and monetary policy (2007)
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:boj:bojwps:07-e-16

Access Statistics for this paper

More papers in Bank of Japan Working Paper Series from Bank of Japan Contact information at EDIRC.
Bibliographic data for series maintained by Bank of Japan ().