Gavin, William T.; Keen, Benjamin D.; Pakko, Michael R. - Federal Reserve Bank of St. Louis - 2007
inflation risk. We calculate the term structure of inflation uncertainty in New Keynesian models when the monetary authority … achieves equilibria with substantially lower long-run inflation risk. With either sticky prices or sticky wages, a price path … target reduces the variance of inflation by an order of magnitude more than it increases the variability of the output gap. …