Communication, learning and optimal monetary policy

M.F. Tesfaselassie

Research output: ThesisDoctoral Thesis

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Abstract

The second part of the thesis deals with interest rate policy under inflation targeting when there is uncertainty in the term structure of interest rates emanating from unobserved, possibly volatile, market sentiments. In situations where expectations depend on the state of the economy--the rate of inflation and the level of the output gap, the central bank faces uncertainty about the degree of persistence in aggregate demand and inflation. Interestingly, the speed of learning about the degree of persistence depends on the interest rate policy followed and the resulting variability in inflation and the output gap, where higher variability speeds up learning and improves control of inflation in the long run. The analysis shows that passive and active learning scenarios have different implications for the degree of response of the rate of interest to the state of the economy and thus for the short-run conduct of monetary policy.
Original languageEnglish
QualificationDoctor of Philosophy
Awarding Institution
  • Tilburg University
Supervisors/Advisors
  • Eijffinger, Sylvester, Promotor
  • Schaling, E., Promotor, External person
Award date16 Dec 2005
Place of PublicationTilburg
Publisher
Print ISBNs9056681559
Publication statusPublished - 2005

Fingerprint

Optimal monetary policy
Communication
Inflation
Uncertainty
Persistence
Output gap
Interest rate policy
Term structure of interest rates
Central bank
Scenarios
Market sentiment
Inflation targeting
Monetary policy
Active learning
Short-run
Aggregate demand

Cite this

Tesfaselassie, M. F. (2005). Communication, learning and optimal monetary policy. Tilburg: CentER, Center for Economic Research.
Tesfaselassie, M.F.. / Communication, learning and optimal monetary policy. Tilburg : CentER, Center for Economic Research, 2005. 136 p.
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Tesfaselassie, MF 2005, 'Communication, learning and optimal monetary policy', Doctor of Philosophy, Tilburg University, Tilburg.

Communication, learning and optimal monetary policy. / Tesfaselassie, M.F.

Tilburg : CentER, Center for Economic Research, 2005. 136 p.

Research output: ThesisDoctoral Thesis

TY - THES

T1 - Communication, learning and optimal monetary policy

AU - Tesfaselassie, M.F.

PY - 2005

Y1 - 2005

N2 - The second part of the thesis deals with interest rate policy under inflation targeting when there is uncertainty in the term structure of interest rates emanating from unobserved, possibly volatile, market sentiments. In situations where expectations depend on the state of the economy--the rate of inflation and the level of the output gap, the central bank faces uncertainty about the degree of persistence in aggregate demand and inflation. Interestingly, the speed of learning about the degree of persistence depends on the interest rate policy followed and the resulting variability in inflation and the output gap, where higher variability speeds up learning and improves control of inflation in the long run. The analysis shows that passive and active learning scenarios have different implications for the degree of response of the rate of interest to the state of the economy and thus for the short-run conduct of monetary policy.

AB - The second part of the thesis deals with interest rate policy under inflation targeting when there is uncertainty in the term structure of interest rates emanating from unobserved, possibly volatile, market sentiments. In situations where expectations depend on the state of the economy--the rate of inflation and the level of the output gap, the central bank faces uncertainty about the degree of persistence in aggregate demand and inflation. Interestingly, the speed of learning about the degree of persistence depends on the interest rate policy followed and the resulting variability in inflation and the output gap, where higher variability speeds up learning and improves control of inflation in the long run. The analysis shows that passive and active learning scenarios have different implications for the degree of response of the rate of interest to the state of the economy and thus for the short-run conduct of monetary policy.

M3 - Doctoral Thesis

SN - 9056681559

T3 - CentER Dissertation Series

PB - CentER, Center for Economic Research

CY - Tilburg

ER -

Tesfaselassie MF. Communication, learning and optimal monetary policy. Tilburg: CentER, Center for Economic Research, 2005. 136 p. (CentER Dissertation Series).