Uncertainty about perceived inflation target and monetary policy

Arbeitspapier

We analyse the interaction between private agents? uncertainty about inflation target and the central bank's data uncertainty. In our model, private agents update their perceived inflation target and the central bank estimates unobservable economic shocks as well as the perceived inflation target. Under those two uncertainties, the learning process of both private agents and the central bank causes higher order beliefs to become relevant, and this mechanism is capable of generating high persistence and volatility of inflation even though the underlying shocks are purely transitory. We also find that the persistence and volatility become smaller as the inflation target becomes more credible, that is, the private agents' uncertainty about inflation target (and hence the bank's data uncertainty) diminishes.

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• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Paper Series 1 ; No. 2007,18

Classification and Topics

• Classification: Wirtschaft ; Central Banks and Their Policies ; Monetary Policy
• Subject: Monetary policy ; central banks ; Inflation Targeting ; Glaubwürdigkeit ; Risiko ; Inflationserwartung ; Geldpolitik ; Inflation ; Volatilität ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Aoki, Kosuke ; Kimura, Takeshi
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2007

Further information

• Handle: http://hdl.handle.net/10419/19695