BIS: monetary policy should factor in oil-price shocks
A paper published by the Bank for International Settlements this month looks at the role of monetary policy following an oil price shock and finds it is optimal for monetary authorities to partially stabilise the effects of oil shocks on inflation, as some inflation is desirable.
Central banks are confronted with a trade-off between stabilising inflation and output when dealing with rising oil prices. This contrasts with the result in the standard New Keynesian model that ensuring complete price
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