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Inflation targeting in a simple macroeconomic model

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  • H. SONMEZ ATESOGLU
  • JOHN SMITHIN
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    Abstract

    In this paper, we argue that an explicit inflation-targeting policy is not likely to be a desirable monetary policy rule, even if it were agreed that a lower inflation rate is an important goal of policy. Inflation targeting is not neutral in the short or the long run, and a strict policy will tend to reduce the equilibrium growth rate. In terms of income distribution, a lower inflation target will tend to reduce real wages and profits and increase real interest rates, that is, the return to rentiers. In certain circumstances, it may still be possible to achieve a combination of both higher growth and lower inflation using other types of policy. However, this would actually require lower real interest rates, rather than the higher rates that are traditionally associated with anti-inflation policy.

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    Bibliographic Info

    Article provided by M.E. Sharpe, Inc. in its journal Journal of Post Keynesian Economics.

    Volume (Year): 28 (2006)
    Issue (Month): 4 (July)
    Pages: 673-688

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    Handle: RePEc:mes:postke:v:28:y:2006:i:4:p:673-688

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    Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=109348

    Related research

    Keywords: income distribution; inflation targeting;

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    Cited by:
    1. Tropeano, Domenica & Michetti, Elisabetta, 2008. "Exchange rate policy and income distribution in an open developing economy," MPRA Paper 6642, University Library of Munich, Germany.
    2. Hein, Eckhard & Schoder, Christian, 2009. "Interest rates, distribution and capital accumulation: A Post-Kaleckian perspective on the US and Germany," IPE Working Papers 04/2009, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    3. repec:hal:wpaper:halshs-00496911 is not listed on IDEAS

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