Endogenous Monetary Policy with Unobserved Potential Output ∗

@inproceedings{Cukierman1951EndogenousMP,
  title={Endogenous Monetary Policy with Unobserved Potential Output ∗},
  author={A. R. Cukierman and Francesco Lippi},
  year={1951}
}
This paper characterizes endogenous monetary policy when policymakers are uncertain about the extent to which movements in output and inflation are due to changes in potential output or to cyclical demand and cost shocks. We refer to this informational limitation as the “information problem” (IP). Main results of the paper are: 1. Policy is likely to be excessively loose (restrictive) for some time when there is a large decrease (increase) in potential output in comparison to a full information… CONTINUE READING
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