Davide Debortoli, Jinill Kim, Jesper Lindé, Ricardo Nunes, 17 September 2018

Previous studies have suggested that for central banks, a focus on inflation stabilisation is enough to stabilise other macroeconomic variables, and that focusing on economic activity can even be harmful. Using a model similar to those in use at central banks, this column studies the welfare implications of increasing the weight on economic activity in the central bank’s objective. The results suggest that stabilising measures of economic activity should be one of the primary objectives of central banks, as important as or even more important than stabilising inflation around its target. 

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