Working Paper No. 279
By Jarkko Jääskelä and Jack McKeown
In this paper we illustrate, using a simple model of monetary policy, the welfare costs of the private sector and/or the central bank being uncertain about the natural level of output. It turns out that monetary policy strategies that put less weight on output stabilisation can offset some of these welfare costs.
Monetary policy and private sector misperceptions about the natural level of output