The gains from commitment when inflation persistence and data uncertainty coexist

Daisuke Ida

Economics Bulletin, 2011, vol. 31, issue 1, 388-395

Abstract: This paper investigates how the gains from commitment are large when inflation persistence and data uncertainty coexist. We consider two types of data uncertainty: measurement errors of potential output and inflation. We show that under a situation where data uncertainty exists, there are large gains from commitment as long as inflation is not extremely forward-looking or backward-looking. In particular, an increase in measurement error of inflation reduces the gains from commitment when forward-looking inflation is important, whereas there are large gains from commitment as long as inflation is not extremely backward-looking.

Keywords: Inflation persistence; Data uncertainty; Optimal monetary policy (search for similar items in EconPapers)
JEL-codes: E3 E5 (search for similar items in EconPapers)
Date: 2011-01-21
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