BdF paper analyses inflation tolerance ranges
Ranges “should not be zones of inaction” and may have unfavourable trade-offs, researchers say
Central banks should consider the consequences of using tolerance ranges in their inflation targets, a working paper published by the Banque de France argues.
In Inflation tolerance ranges in the New Keynesian model, Hervé Le Bihan, Magali Marx and Julien Matheron note these polices are used by several central banks in advanced countries. These central banks tend to react more strongly to inflation outside the range than when it is close to the range’s central value, they say.
“A tolerance
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