We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
Rule-based monetary policy under central bank learning.
- Authors
Aoki, Kosuke; Nikolov, Kalin
- Abstract
The article reports on role-based monetary policy under central bank learning. The monetary policy literature has reached a near-consensus that committing to a monetary policy rule can improve stabilisation policy. But in a practical situation, where there is considerable uncertainty, it is difficult to commit to a 'mechanical' rule, which may turn out to be a bad rule 'ex post'. This paper offers a way to reconcile commitment with flexibility for the central bank under imperfect information. But when the central bank and the private sector have imperfect information about the structure of the economy, the performance of the history-dependent policy rule deteriorates substantially. In contrast, the price level targeting rule continues to perform well. The simple intuition behind this result is as follows. In a world of perfect information, agents and policymakers never make mistakes and they can make precise promises, without fearing that they would regret them in the future when their information improves.
- Subjects
CENTRAL banking industry; BANKING industry; ECONOMIC policy; ECONOMIC structure; PRICE regulation; QUANTITY theory of money
- Publication
Bank of England Quarterly Bulletin, 2004, Vol 44, Issue 4, p459
- ISSN
0005-5166
- Publication type
Article