Date: 2009
Type: Working Paper
Monetary Policy and Mismeasured Inflation
Working Paper, EUI RSCAS, 2009/44, Pierre Werner Chair Programme on Monetary Union
WEBER, Henning, Monetary Policy and Mismeasured Inflation, EUI RSCAS, 2009/44, Pierre Werner Chair Programme on Monetary Union - https://hdl.handle.net/1814/12387
Retrieved from Cadmus, EUI Research Repository
I examine the standard New Keynesian model augmented with product entry and
exit. The statistical agency in the model measures product entry with a delay. Consequently,
measured in
ation departs from true, utility-based in
ation. I show that the gap
between measured in
ation and true in
ation is serially correlated and varies with the
state of the economy. This result contrasts with the common assumption of white-noise
exogenous measurement error. True in
ation is more volatile and less persistent than
measured in
ation, and the correlation between true in
ation and true output is lower
than the correlation between measured in
ation and measured output. Furthermore, I
analyze monetary policy given the measurement problem.
Cadmus permanent link: https://hdl.handle.net/1814/12387
ISSN: 1028-3625
Series/Number: EUI RSCAS; 2009/44; Pierre Werner Chair Programme on Monetary Union
Keyword(s): E01 E31 E32 Measurement Bias Inflation Monetary Policy Product Entry and Exit