Trade-offs in monetary policy

Our aim is to explore the game that occurs between two or more central banks performing monetary policy under flexible inflation targeting, using the interest rate as

– The Bank’s monetary policy objective is to deliver price stability – low inflation – and, subject to that, to support the Government’s economic objectives including those

indications that aggregate inflation in sticky price sectors contain more information about inflation expectations in the medium term than changes in flexible price sectors.

To ensure stability in the exchange rate against the euro, monetary policy instruments must be oriented towards reducing price and cost inflation to the level aimed at by the

Central bank balance sheets – private sector bond purchases. Assets

While optimal monetary policy is able to stabilize price in‡ation, wage in‡ation and output around potential almost completely in the standard New Keynesian model, the trade- o¤s

economic history shows that inflation and inflation expectations can become unhinged. There are many self-regulating mechanisms in the economy, but inflation does not regulate

Given that there are shocks in the Phillips curve the observed inflation will deviate from this average inflation, reflecting the fact that the central bank sets the inflation