Parameter Uncertainty and Inflation Dynamics in a Model with Asymmetric Central Bank Preferences

Simple item page
dc.contributor.authorChesang, Laban K.
dc.contributor.authorNaraidoo, Ruthira
dc.date.accessioned2021-06-25T10:58:36Z
dc.date.available2021-06-25T10:58:36Z
dc.date.issued2016
dc.description.abstractThis paper exploits the Lucas’ (1973) signal extraction model to study the effect of uncertainty in the outputinflation trade-off on inflation, using a monetary model with asymmetric central bank preferences over inflation and output. We show that the implication of the uncertainty is two-fold: firstly, it causes the interaction of output and volatility of monetary policy to influence inflation movements so that, higher volatility in monetary policy causes inflation to rise. Secondly, as suggested in an optimal rule, it causes output to contract by less whenever inflation increases above the target, and to expand by less whenever inflation is below the target. We also find that the Reserve Bank’s asymmetric aversion to inflation stabilization explains inflation movements significantly, and that the monetary authority seems to penalize more for inflationary rather than deflationary pressures. Overall, the Bank’s deflationary bias would allow for a relatively flat output-inflation trade-off, which could be helpful for economic stability.en_US
dc.identifier.citationChesang, L.K., & Naraidoo, R. (2016). Parameter uncertainty and inflation dynamics in a model with asymmetric central bank preferences. Economic Modelling, Elsevier, 56, 1-10.en_US
dc.identifier.urihttps://repository.daystar.ac.ke/handle/123456789/3647
dc.language.isoenen_US
dc.publisherEconomic Modellingen_US
dc.subjectMonetary policyen_US
dc.subjectAsymmetric preferencesen_US
dc.subjectInflationen_US
dc.subjectUncertaintyen_US
dc.titleParameter Uncertainty and Inflation Dynamics in a Model with Asymmetric Central Bank Preferencesen_US
dc.typeArticleen_US

Files

Original bundle
Now showing 1 - 1 of 1
Thumbnail Image
Name:
Parameter Uncertainty and Inflation Dynamics in a Model with Asymmetric.pdf
Size:
274.96 KB
Format:
Adobe Portable Document Format
Description:
Journal Article
Download
License bundle
Now showing 1 - 1 of 1
No Thumbnail Available
Name:
license.txt
Size:
1.6 KB
Format:
Item-specific license agreed upon to submission
Description:
Download

Collections

Journal Articles