The Return of Inflation: Look-Through Policy Under Incomplete Information

Ginters Buss and Guido Traficante

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: This paper studies monetary policy in a New Keynesian model with incomplete information regarding the persistence of cost-push shocks. The central bank and the private sector gradually learn about the persistence of the shock as it propagates through the economy. The central bank adopts a look-through policy in response to temporary cost-push shocks; otherwise, it follows a Taylor rule. If agents initially believe the cost-push shock to be temporary, while the true shock is persistent, it takes some time for the central bank, acting initially under an incorrect assumption, to realise its mistake and switch to monetary tightening. As a result, the actual inflation is higher than in a complete information case. Data-dependent discretionary early liftoff strategies can partially mitigate the effects of the initial policy misjudgment. Contrary to the full-information conditions, the findings cast doubt on the effectiveness of look-through policies in environments of incomplete information, irrespective of the actual persistence of the cost-push shock.

Keywords: monetary policy; imperfect information; cost-push shock; high inflation (search for similar items in EconPapers)
JEL-codes: D83 E17 E31 E47 E52 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2025-07
New Economics Papers: this item is included in nep-dge and nep-mon
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://crawford.anu.edu.au/sites/default/files/20 ... uss_Traficante_0.pdf (application/pdf)

Related works:
Working Paper: The Return of Inflation: Look-Through Policy Under Incomplete Information (2025)
Working Paper: The Return of Inflation: Look-Through Policy Under Incomplete Information (2025)
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:een:camaaa:2025-40

Access Statistics for this paper

More papers in CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University Contact information at EDIRC.
Bibliographic data for series maintained by Cama Admin ().