Template-Type: ReDIF-Paper 1.0
Author-Name: Spencer Krane
Author-X-Name-First: Spencer
Author-X-Name-Last: Krane
Author-Name: Leonardo Melosi
Author-X-Name-First: Leonardo
Author-X-Name-Last: Melosi
Author-Name: Matthias Rottner
Author-X-Name-First: Matthias
Author-X-Name-Last: Rottner
Title: Learning monetary policy strategies at the effective lower bound with sudden surprises
Abstract: We examine how private sector agents might learn a new monetary strategy introduced while policy rates are at their effective lower bound (ELB) in an environment with large inflationary and deflationary shocks. We consider the adoption of a new asymmetric average inflation targeting rule aimed at countering the disinflationary bias imparted by the ELB. The most crucial time for learning runs from when rates would be near liftoff under the old strategy through early liftoff under the new rule. Recessionary shocks during this time could delay learning while large inflationary shocks could outright stop it, inhibiting the ability of the new strategy to address the costs associated with the ELB. Using the US post-Covid experience as an example, we also find that the monetary policy shocks can have important feedback on the learning process.
Creation-Date: 2026-05
File-URL: https://www.bis.org/publ/work1349.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1349.htm
File-Format: text/html
Number: 1349
Keywords: new framework, central bank's communications, deflationary bias, inflation surprises, asymmetric average inflation targeting, imperfect credibility, liftoff, Bayesian learning
Classification-JEL: E52, C63, E31
Handle: RePEc:bis:biswps:1349