Learning, uncertainty and central bank activism in an economy with strategic interactions.
- In this paper we examine the optimal level of central bank activism in a standard model of monetary policy with uncertainty, learning and strategic interactions. We calibrate the model using G7 data and find that the presence of strategic interactions between the central bank and private agents creates an additional motivation for caution in optimal monetary policy. An active policy designed to help learning and reduce future uncertainty creates extra volatility in inflation expectations, which is detrimental to welfare.
- Publisher copy:
- Local pid:
- Deposit date:
- Copyright date:
If you are the owner of this record, you can report an update to it here: Report update to this record