Disinflationary shocks and inflation target uncertainty
Stefano Neri () and
Tiziano Ropele ()
Economics Letters, 2019, vol. 181, issue C, 77-80
In New Keynesian models favourable cost-push shocks lower inflation and increase output. Yet, when the central bank’s inflation target is not perfectly observed these shocks turn contractionary as agents erroneously perceive a temporary reduction in the target. This effect is amplified when monetary policy is constrained by the effective lower bound on the policy rate.
Keywords: Inflation target; Imperfect information; Monetary policy (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 (search for similar items in EconPapers)
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