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Ambiguity, Monetary Policy and Trend Inflation

Francesca Monti () and Riccardo M. Masolo

No 508, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: Allowing for ambiguity, or Knightian uncertainty, about the behavior of the policymaker helps explain the evolution of trend inflation in the US in a simple new-Keynesian model, without resorting to exogenous changes in the inflation target. Using Blue Chip survey data to gauge the degree of private sector confidence, our model helps reconcile the difference between target inflation and the inflation trend measured in the data. We also show how, in the presence of ambiguity, it is optimal for policymakers to lean against the private sectors pessimistic expectations.

New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
Date: 2017
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Working Paper: Ambiguity, Monetary Policy and Trend Inflation (2017) Downloads
Working Paper: Ambiguity, monetary policy and trend inflation (2017) Downloads
Working Paper: Ambiguity, monetary policy and trend inflation (2015) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed017:508

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