Average Inflation Targeting: Time Inconsistency and Intentional Ambiguity /
Jia, Chengcheng.
Average Inflation Targeting: Time Inconsistency and Intentional Ambiguity / Chengcheng Jia, Jing Cynthia Wu. - Cambridge, Mass. National Bureau of Economic Research 2022. - 1 online resource: illustrations (black and white); - NBER working paper series no. w29673 . - Working Paper Series (National Bureau of Economic Research) no. w29673. .
January 2022.
We study the implications of the Fed's new policy framework of average inflation targeting (AIT) and its ambiguous communication. The central bank has the incentive to deviate from its announced AIT and implement inflation targeting ex post to maximize social welfare. We show two motives for ambiguous communication about the horizon over which the central bank averages inflation as a result of time inconsistency. First, it is optimal for the central bank to announce different horizons depending on the state of the economy. Second, ambiguous communication helps the central bank gain credibility.
System requirements: Adobe [Acrobat] Reader required for PDF files.
Mode of access: World Wide Web.
Average Inflation Targeting: Time Inconsistency and Intentional Ambiguity / Chengcheng Jia, Jing Cynthia Wu. - Cambridge, Mass. National Bureau of Economic Research 2022. - 1 online resource: illustrations (black and white); - NBER working paper series no. w29673 . - Working Paper Series (National Bureau of Economic Research) no. w29673. .
January 2022.
We study the implications of the Fed's new policy framework of average inflation targeting (AIT) and its ambiguous communication. The central bank has the incentive to deviate from its announced AIT and implement inflation targeting ex post to maximize social welfare. We show two motives for ambiguous communication about the horizon over which the central bank averages inflation as a result of time inconsistency. First, it is optimal for the central bank to announce different horizons depending on the state of the economy. Second, ambiguous communication helps the central bank gain credibility.
System requirements: Adobe [Acrobat] Reader required for PDF files.
Mode of access: World Wide Web.