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Disinflationary shocks and inflation target uncertainty

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  • Neri, Stefano
  • Ropele, Tiziano

Abstract

In New Keynesian models favourable cost-push shocks lower inflation and increase output. Yet, when the central bank’s inflation target is not perfectly observed these shocks turn contractionary as agents erroneously perceive a temporary reduction in the target. This effect is amplified when monetary policy is constrained by the effective lower bound on the policy rate.

Suggested Citation

  • Neri, Stefano & Ropele, Tiziano, 2019. "Disinflationary shocks and inflation target uncertainty," Economics Letters, Elsevier, vol. 181(C), pages 77-80.
    • Handle: RePEc:eee:ecolet:v:181:y:2019:i:c:p:77-80
    DOI: 10.1016/j.econlet.2019.05.008
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    Cited by:

    1. Marco Bottone & Cristina Conflitti & Marianna Riggi & Alex Tagliabracci, 2021. "Firms' inflation expectations and pricing strategies during Covid-19," Questioni di Economia e Finanza (Occasional Papers) 619, Bank of Italy, Economic Research and International Relations Area.
    2. Neri, Stefano, 2023. "Long-term inflation expectations and monetary policy in the euro area before the pandemic," European Economic Review, Elsevier, vol. 154(C).
    3. Corsello, Francesco & Neri, Stefano & Tagliabracci, Alex, 2021. "Anchored or de-anchored? That is the question," European Journal of Political Economy, Elsevier, vol. 69(C).
    4. Oleg S. Sukharev, 2020. "Inflation control and adequacy of targeting to economic growth policy," Upravlenets, Ural State University of Economics, vol. 11(1), pages 33-44, March.
    5. Cecion, Martina & Coenen, Günter & Gerke, Rafael & Le Bihan, Hervé & Motto, Roberto & Aguilar, Pablo & Ajevskis, Viktors & Giesen, Sebastian & Albertazzi, Ugo & Gilbert, Niels & Al-Haschimi, Alexander, 2021. "The ECB’s price stability framework: past experience, and current and future challenges," Occasional Paper Series 269, European Central Bank.

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    More about this item

    Keywords

    Inflation target; Imperfect information; Monetary policy;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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