If a shock does not lead to a permanent pass-through on inflation and the central bank is credibly committed to price stability, it is optimal for a central bank not to react.11 Looking at the estimated Taylor rule coefficients only, the central bank would appear as quite dovish, while it is instead quite hawkish and expected to be so.12 *** Moving to the end of my talk, I would like to emphasise that interacting with markets and trying to shape expectations is not an easy job.
Central banks are highly committed to this, and they try to do it with all the instruments that are available to them. However, it would be misleading to think that central banks act in a vacuum, with no constraints.