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The gains from commitment when inflation persistence and data uncertainty coexist

Author

Listed:
  • Daisuke Ida

    (Graduate School of Economics, Kobe University)

Abstract

This paper investigates how the gains from commitment are large when inflation persistence and data uncertainty coexist. We consider two types of data uncertainty: measurement errors of potential output and inflation. We show that under a situation where data uncertainty exists, there are large gains from commitment as long as inflation is not extremely forward-looking or backward-looking. In particular, an increase in measurement error of inflation reduces the gains from commitment when forward-looking inflation is important, whereas there are large gains from commitment as long as inflation is not extremely backward-looking.

Suggested Citation

  • Daisuke Ida, 2011. "The gains from commitment when inflation persistence and data uncertainty coexist," Economics Bulletin, AccessEcon, vol. 31(1), pages 388-395.
    • Handle: RePEc:ebl:ecbull:eb-10-00287
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    File URL: http://www.accessecon.com/Pubs/EB/2011/Volume31/EB-11-V31-I1-P37.pdf
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    More about this item

    Keywords

    Inflation persistence; Data uncertainty; Optimal monetary policy;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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