Monetary Policy without Commitment / Hassan Afrouzi, Marina Halac, Kenneth S. Rogoff, Pierre Yared.

Format:

Book

Author/Creator:

Afrouzi, Hassan.

Contributor:

National Bureau of Economic Research.

Halac, Marina.

Rogoff, Kenneth S.

Yared, Pierre.

Series:

Working Paper Series (National Bureau of Economic Research) no. w31207.

NBER working paper series no. w31207

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2023.

Summary:

This paper studies the implications of central bank credibility for long-run inflation and inflation dynamics. We introduce central bank lack of commitment into a standard non-linear New Keynesian economy with sticky-price monopolistically competitive firms. Inflation is driven by the interaction of lack of commitment and the economic environment. We show that long-run inflation increases following an unanticipated permanent increase in the labor wedge or decrease in the elasticity of substitution across varieties. In the transition, inflation overshoots and then gradually declines. Quantitatively, the inflation response is large, as is the welfare loss from lack of commitment relative to inflation targeting.

Notes:

Print version record

May 2023.