Responding to oil price shocks
Research published by the San Francisco Federal Reserve discusses the trade-off between stabilising inflation and the welfare-relevant output gap which arises in a distorted economy. The research provides a contrast to the conclusions of the new Keynesian literature that ensuring complete price stability is the optimum course.
The research outlines a simple interest rate feedback rule which mimics an optimal plan in all relevant dimensions but which depends only on observables, such as core
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