Monetary policy and private sector misperceptions about the natural level of output

Working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 30 September 2005

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.

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