Focusing on headline could induce volatility
Policies that react to headline inflation can induce different macroeconomic effects than those reacting to core inflation, a new paper from the Federal Reserve Board finds.
The authors find that policies reacting to headline inflation following a temporary energy shock induce greater volatility in core inflation and the output gap. In uncertainty about the presence of a shock, focusing on headline inflation may contribute to greater volatility in realised headline inflation than focusing on
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