Average inflation targeting: Time inconsistency and ambiguous communication

Chengcheng Jia and Jing Cynthia Wu

Journal of Monetary Economics, 2023, vol. 138, issue C, 69-86

Abstract: We study the implications of average inflation targeting (AIT). AIT improves the inflation-output trade-off when the private sector believes the central bank’s announcement. Ex post, the central bank has the incentive to implement inflation targeting instead to maximize social welfare. Next, we examine whether and how the central bank can convince the private sector, and find ambiguous communication helps the central bank gain credibility and improve welfare. These results apply to several key aspects of AIT announcement and do not rely on specific modeling assumptions.

Keywords: Inflation expectations; Average inflation targeting; Time inconsistency; Ambiguous communication (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 (search for similar items in EconPapers)
Date: 2023
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Working Paper: Average Inflation Targeting: Time Inconsistency and Ambiguous Communication (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:138:y:2023:i:c:p:69-86

DOI: 10.1016/j.jmoneco.2023.05.010

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