Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/230373
Authors: 
Bianchi, Francesco
Melosi, Leonardo
Rottner, Matthias
Year of Publication: 
2019
Series/Report no.: 
Working Paper No. 2019-07
Abstract: 
Since the 2001 recession, average core inflation has been below the Federal Reserve's 2% target. This deflationary bias is a predictable consequence of a low nominal interest rates environment. When monetary policy faces the risk of encountering the zero lower bound, in.ation tends to remain persistently below the central bank's target, even if monetary policy is currently not constrained. The deflationary bias increases if macroeconomic uncertainty rises or the natural real interest rate falls. An asymmetric rule according to which the central bank accepts longer periods of in.ation above target corrects the bias and brings inflation back on target. Adopting this asymmetric rule improves welfare and reduces the risk of self-fulfilling deflationary spirals.
Subjects: 
Deflationary bias
asymmetric rules
opportunistic reflation
welfare
natural rate
zero lower bound
disanchoring of inflation expectations
inflation targeting
liquidity traps
macroeconomic uncertainty
JEL: 
E31
E52
E62
E63
D83
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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