Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
965976 | Journal of Macroeconomics | 2009 | 5 Pages |
Abstract
Discretionary monetary policy suffers from a stabilization bias, whose size is known to be dependent on the degree of shock persistence. This note analyzes the size of this bias and, consequently, the rationale for delegating monetary policy to an inflation-averse central banker, when the economy faces uncertainty about the true degree of shock persistence. We show that the stabilization bias increases if uncertainty becomes larger. Hence, the degree of optimal monetary conservatism increases with the degree of uncertainty.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Peter Tillmann,