Learning with uncertain inflation target

Stefano Marzioni and Guido Traficante

International Review of Economics & Finance, 2023, vol. 84, issue C, 624-634

Abstract: This paper studies the effects of a temporary increase in the inflation target in a model with adaptive learning and imperfect credibility of the central bank. In such a setup the private sector has to learn the model governing the economy and assess if the change in the interest rate is due to a standard interest rate shock or to a persistent shock to the inflation target. We find that the analytical condition that guarantees asymptotical E-stability under full credibility is the same that we obtain for the calibrated version of our model under imperfect credibility. Under full credibility the transition to the long-run equilibrium is faster and the variance of inflation is lower. Our results are consistent with the view that increasing the inflation target can be used as a policy instrument without unanchoring expectations.

Keywords: Kalman filter; Adaptive learning; Policy targets (search for similar items in EconPapers)
JEL-codes: E52 E62 F41 F42 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056022003045
Full text for ScienceDirect subscribers only

Related works:
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:eee:reveco:v:84:y:2023:i:c:p:624-634

DOI: 10.1016/j.iref.2022.11.031

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().