Policy Experiments II
The first five rows report the standard deviations calculated from the impulse response series of consumption, output, investment, labor hours worked, and CPI inflation in response to a tax shock on households’ and firms’ use of fossil fuel. The last three columns report welfare losses. The main policy scenario is a simple rule, using which the central bank targets only inflation rather than both output and inflation. In the first two columns, standard deviations are calculated under the assumption that the central bank targets core (i.e., non-energy) inflation. In the last two, they are calculated under the assumption that the CPI inflation is targeted.
|Core Inflation||CPI Inflation|
|Storage||No Storage||Storage||No Storage|
|Welfare Losses (Ω)|
|Ωπ = Ωy = 0.5||0.1492||0.2448||0.0967||0.1475|
|Ωπ = 1, Ωy = 0.5||0.1847||0.4389||0.1118||0.2585|