Inflation target uncertainty magnifies price shocks’ impact- BoI paper
Researchers investigate effects of central banks failing to pefectly follow targets
A working paper published by the Bank of Italy paper looks at the impact of uncertainty about inflation targeting on the real economy.
In Disinflationary shocks and inflation target uncertainty, Stefano Neri and Tiziano Ropele use a small‐scale New Keynesian model to study what happens when a central bank’s inflation target is not perfectly observed by the central bank itself, and by other agents.
They find that under these conditions, disinflationary cost-push shocks have a negative impact
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