Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/107297
Authors: 
Mele, Antonio
Molnár, Krisztina
Santoro, Sergio
Year of Publication: 
2015
Series/Report no.: 
CESifo Working Paper 5173
Abstract: 
We show that price level stabilization is not optimal in an economy where agents have incomplete knowledge about the policy implemented and try to learn it. A systematically more accommodative policy than what agents expect generates short term gains without triggering an abrupt loss of confidence, since agents update expectations sluggishly. In the long run agents learn the policy implemented, and the economy converges to a rational ex- pectations equilibrium in which policy does not stabilize prices, economic volatility is high, and agents suffer the corresponding welfare losses. However, these losses are outweighed by short term gains from the learning phase.
Subjects: 
optimal monetary policy
learning
price level targeting
JEL: 
C62
D83
D84
E52
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.