Macroeconomic effects of inflation target uncertainty shocks
Marcelo Arbex (),
Sidney Caetano and
Economics Letters, 2019, vol. 181, issue C, 111-115
We study the macroeconomic effects of a time-varying inflation target (IT), which stochastic volatility follows an autoregressive process. We show that the quantitative economic effects of IT uncertainty shocks depend crucially on the Taylor-rule type adopted by the monetary authority. Following this kind of disturbance, a less severe recession and deflation is observed under a more reactive interest rate rule, while an empirical plausible degree of interest rate smoothing leads output, unemployment, and inflation to react more strongly causing the recession to be more severe and deflationary.
Keywords: Uncertainty shocks; Inflation target; Monetary policy (search for similar items in EconPapers)
JEL-codes: E31 E32 E52 E58 (search for similar items in EconPapers)
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Working Paper: Macroeconomic Effects of Inflation Target Uncertainty Shocks (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:181:y:2019:i:c:p:111-115
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