BoE researchers model trend inflation with ambiguity
Ambiguity an important element of trend inflation model
Economists at the Bank of England (BoE) attempt to create a more realistic model of trend inflation in a staff working paper published on November 13.
In Ambiguity, monetary policy and trend inflation, authors Riccardo Masolo and Francesca Monti design a model where trend inflation is determined by the inflation target, the strength of the central bank response to deviations from target, and the degree of uncertainty over policy.
Agents form beliefs about inflation based on a distorted view of
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