LFIN Seminar

November 25, 2022


CORE B-135

Jean-Bernard Chatelain (Paris school of Economics)

will give a presentation on

Persistence-Dependent Optimal Policy Rules


A policy target (for example inflation) may depend on exogenous cost-push shocks with different degrees of persistence, including non-stationary shocks. For example, these shocks may affect energy or imported prices. The larger the persistence of these exogenous shocks, the larger the welfare losses and the larger the optimal response of policy instrument to these exogenous shocks. This policy maker's response to exogenous shocks is optimal because it decreases the sensitivity of the policy target to the cost-push shock, down to be near zero for very high persistence up to non stationary shocks.