An excessive focus on inflation in a monetary policy rule can cause welfare losses, a team of researchers from the Dallas Fed finds in new working paper.

Daisuke Ikeda and Takushi Kurozumi investigate to what extent monetary policy is able to improve social welfare in a slow post-crisis recovery. They question whether monetary policy should focus primarily on inflation stabilisation as opposed to output stabilisation.

The authors analyse a group of monetary policy rules using US data. Their