Monetary policy frameworks away from the ELB

Fiorella De Fiore, Benoit Mojon, Daniel Rees and Damiano Sandri

No 1156, BIS Working Papers from Bank for International Settlements

Abstract: We evaluate the performance of alternative monetary policy rules during and after the post-pandemic inflation surge. We first document that inflation expectations remained well anchored in advanced economies irrespective of differences in monetary policy frameworks. We then show that an aggressive inflation targeting (IT) rule would have contained the inflation surge very modestly relative to a benchmark average inflation targeting (AIT) rule, at the cost of larger negative output gaps. Finally, looking at the post inflation surge period, we compare monetary policy frameworks with respect to potential changes in the slope of the Phillips curve or changes in the level of r*. We illustrate that the benefits of a dual mandate relative to a single mandate increase when the Phillips curve is flatter; that AIT rules tend to stabilize inflation and interest rates relative to IT rules but at the cost of higher output volatility; and that AIT is more robust than IT to a possible misperception of r*.

Keywords: monetary policy frameworks; inflation targeting; average inflation targeting; dual mandate (search for similar items in EconPapers)
JEL-codes: E31 E42 E52 E58 (search for similar items in EconPapers)
Date: 2023-12
New Economics Papers: this item is included in nep-ban and nep-mon
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Related works:
Working Paper: Monetary policy frameworks away from the ELB (2024)
Working Paper: Monetary Policy Frameworks Away from the ELB (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:1156

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