Learning about the term structure and optimal rules for inflation targeting
Tesfaselassie,M.F. Schaling,E. Eijffinger,S.C.W.
Tesfaselassie,M.F.
Schaling,E.
Eijffinger,S.C.W.
Abstract
In this paper, we incorporate the term structure of interest rates in the New Keynesian model and analyze optimal policy under uncertainty about private sector expectations and the degree of inflation persistence. The novel result of our paper is that for large deviations of inflation from its target, the active learning policy is less activist—in the sense of responding less aggressively to the state of the economy—than a myopic policy, which ignores the learning channel. Moreover, for most initial beliefs, the incentive for active learning increases as monetary policy’s leverage over the long-term interest rate increases.
Description
Appeared earlier as CentER DP 2006-088
Date
2011
Journal Title
Journal ISSN
Volume Title
Publisher
Research Projects
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Journal Issue
Keywords
SDG 17 - Partnerships for the Goals
Citation
Tesfaselassie, M F, Schaling, E & Eijffinger, S C W 2011, 'Learning about the term structure and optimal rules for inflation targeting', Journal of Money Credit and Banking, vol. 43, no. 8, pp. 1685-1706. https://doi.org/10.1111/j.1538-4616.2011.00463.x
License
info:eu-repo/semantics/restrictedAccess