In this VOXEU article, the authors talk about a model in which behaviour economics is applied to macroeconomics.

I'm trying to understand fig.1, and the following sentence: «This means that if the central bank keeps its inflation control unchanged, increasing flexibility creates a new trade-off, which is negatively sloped – that is, more flexibility then reduces output volatility at the expense of more inflation variability.»

Why is there a trade-off when b2 increases? doesn't the std dev of inflation gap decreases as the std dev of output gap decreases? where's the trade-off?

I just don't see how there's a trade-off when the flexibility parameter b2 increases... Also, the authors sometimes say that b2 is the «sensitivity of inflation to the output gap», and others «[wage/price] flexibility».

Any help would be appreciated.


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