Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/319939 
Year of Publication: 
2011
Series/Report no.: 
CASMEF Working Paper Series No. WP 2011/04
Publisher: 
LUISS Guido Carli, Department of Economics and Business, Arcelli Centre for Monetary and Financial Studies, Rome
Abstract: 
What is the welfare loss arising from uncertainty about true policy targets? We quantify these effects in a DSGE model where private agents are unable to distinguish between temporary shocks to potential output and to the inflation target. Agents use optimal filtering techniques to construct estimates of the unknown variables. We find that the welfare costs of not observing the inflation target and potential output are relevant even in the case of a small measurement error. We also show that, in our framework, uncertainty about the inflation target is more costly than uncertainty about potential output.
Subjects: 
Monetary Policy
Kalman Filter
Potential Output
JEL: 
E5
E37
E52
E58
Document Type: 
Working Paper

Files in This Item:
File
Size





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