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Why Money Talks and Wealth Whispers: Monetary Uncertainty and Mystique
Eijffinger,S.C.W. Hoeberichts,M.M. Schaling,E.
Eijffinger,S.C.W.
Hoeberichts,M.M.
Schaling,E.
Abstract
This paper analyzes the effect of monetary uncertainty on the inflationary bias and the variance of output and inflation. Monetary policy uncertainty is modeled as a shock to the central banker’s preference for inflation stabilization relative to output stabilization that cannot be observed by the public. We find that the mean and variance of inflation increase with the variance of this preference shock. However, unlike other studies, we find that monetary uncertainty may very well have a positive effect on output stabilization and therefore also on society’s welfare.
Description
Pagination: 18
Date
1997
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Publisher
Macroeconomics
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47.pdf
Adobe PDF, 89.42 KB
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Keywords
credibility, flexibility, uncertainty, E52 - Monetary Policy, E58 - Central Banks and Their Policies, SDG 17 - Partnerships for the Goals
Citation
Eijffinger, S C W, Hoeberichts, M M & Schaling, E 1997 'Why Money Talks and Wealth Whispers : Monetary Uncertainty and Mystique' CentER Discussion Paper, vol. 1997-47, Macroeconomics, Tilburg.