Template-Type: ReDIF-Paper 1.0
Author-Name: Fiorella De Fiore
Author-X-Name-First: Fiorella
Author-X-Name-Last: De Fiore
Author-Name: Benoit Mojon
Author-X-Name-First: Benoit
Author-X-Name-Last: Mojon
Author-Name: Daniel Rees
Author-X-Name-First: Daniel
Author-X-Name-Last: Rees
Author-Name: Damiano Sandri
Author-X-Name-First: Damiano
Author-X-Name-Last: Sandri
Title: Monetary policy frameworks away from the ELB
Abstract: We evaluate the performance of alternative monetary policy rules during and after the post-pandemic inflation surge. We first document that inflation expectations remained well anchored in advanced economies irrespective of differences in monetary policy frameworks. We then show that an aggressive inflation targeting (IT) rule would have contained the inflation surge very modestly relative to a benchmark average inflation targeting (AIT) rule, at the cost of larger negative output gaps. Finally, looking at the post inflation surge period, we compare monetary policy frameworks with respect to potential changes in the slope of the Phillips curve or changes in the level of r*. We illustrate that the benefits of a dual mandate relative to a single mandate increase when the Phillips curve is flatter; that AIT rules tend to stabilize inflation and interest rates relative to IT rules but at the cost of higher output volatility; and that AIT is more robust than IT to a possible misperception of r*.
Creation-Date: 2023-12
File-URL: https://www.bis.org/publ/work1156.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1156.htm
File-Format: text/html
Number: 1156
Keywords: monetary policy frameworks, inflation targeting, average inflation targeting, dual mandate
Classification-JEL: E31, E42, E52, E58
Handle: RePEc:bis:biswps:1156