Ambiguity, monetary policy and trend inflation

Riccardo M. Masolo and Francesca Monti

No 565, Bank of England working papers from Bank of England

Abstract: We develop a model that can explain the evolution of trend inflation in the United States in the three decades before the Great Recession as a function of the reduction in uncertainty about the monetary policy maker’s behaviour. The model features ambiguity-averse agents and ambiguity regarding the conduct of monetary policy, but is otherwise standard. Trend inflation arises endogenously and has these determinants: the strength with which the central bank responds to inflation, the degree of uncertainty about monetary policy perceived by the private sector, and, if it exists, the inflation target. Given the importance of monetary policy for the determination of trend inflation, we also study optimal monetary policy in the case of lingering ambiguity.

Keywords: Ambiguity aversion; monetary policy; trend inflation. (search for similar items in EconPapers)
JEL-codes: D84 E31 E43 E52 E58 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2015-11-13
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.bankofengland.co.uk/-/media/boe/files/ ... E3C19B28881F89DD860B Full text (application/pdf)

Related works:
Journal Article: Ambiguity, Monetary Policy and Trend Inflation (2021)
Working Paper: Ambiguity, Monetary Policy and Trend Inflation (2017)
Working Paper: Ambiguity, monetary policy and trend inflation (2017)
Working Paper: Ambiguity, Monetary Policy and Trend Inflation (2017)
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:boe:boeewp:0565

Access Statistics for this paper

More papers in Bank of England working papers from Bank of England Bank of England, Threadneedle Street, London, EC2R 8AH. Contact information at EDIRC.
Bibliographic data for series maintained by Digital Media Team ().