Monetary Policy Frameworks Away from the ELB

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

RBA Annual Conference Papers from Reserve Bank of Australia

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: inflation; monetary policy frameworks; central bank reviews; inflation targeting; inflation expectations (search for similar items in EconPapers)
Date: 2023-09, Revised 2023-12
New Economics Papers: this item is included in nep-cba and nep-mon
Note: Paper presented at the RBA's annual conference 'Inflation', Sydney, 25–26 September 2023.
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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:rba:rbaacp:acp2023-06

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