What is the welfare loss arising from uncertainty about true policy targets? We quantify these effects in a DSGE model where private agents are unable to distinguish between temporary shocks to potential output and to the inflation target. Agents use optimal filtering techniques to construct estimates of the unknown variables. We find that the welfare costs of not observing the inflation target and potential output are relevant even in the case of a small measurement error. We also show that, in our framework, uncertainty about the inflation target is more costly than uncertainty about potential output.

The Loss from Uncertainty on Policy targets / Di Giorgio, Giorgio; Traficante, G.. - In: ECONOMIC MODELLING. - ISSN 0264-9993. - 30:(2013), pp. 175-182. [10.1016/j.econmod.2012.08.006]

The Loss from Uncertainty on Policy targets

DI GIORGIO, GIORGIO;
2013

Abstract

What is the welfare loss arising from uncertainty about true policy targets? We quantify these effects in a DSGE model where private agents are unable to distinguish between temporary shocks to potential output and to the inflation target. Agents use optimal filtering techniques to construct estimates of the unknown variables. We find that the welfare costs of not observing the inflation target and potential output are relevant even in the case of a small measurement error. We also show that, in our framework, uncertainty about the inflation target is more costly than uncertainty about potential output.
The Loss from Uncertainty on Policy targets / Di Giorgio, Giorgio; Traficante, G.. - In: ECONOMIC MODELLING. - ISSN 0264-9993. - 30:(2013), pp. 175-182. [10.1016/j.econmod.2012.08.006]
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11385/58656
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