Inflation/Output Variance Trade-Offs and Optimal Monetary Policy
Author | : Jeffrey C. Fuhrer |
Publisher | : |
Total Pages | : 0 |
Release | : 1998 |
ISBN-10 | : OCLC:1375396847 |
ISBN-13 | : |
Rating | : 4/5 ( Downloads) |
Download or read book Inflation/Output Variance Trade-Offs and Optimal Monetary Policy written by Jeffrey C. Fuhrer and published by . This book was released on 1998 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: I estimate the inflation/output-gap variance trade-off faced by monetary policymakers in the U.S. For policymakers who care about deviations of inflation around target and output around potential, the estimated trade-off represents the "optimal policy frontier." Given the structure of the economy, policymakers can do no better than to attain weighted variances of inflation and output that lie on the frontier. I find that the variance trade-off becomes quite severe when the standard deviation of inflation or output drops much below 2%. This suggests that approximately balanced responses to policy goals are consistent with reasonable preferences over inflation and output variability.