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The optimal rate of inflation and the inflation target: international experience and the Hungarian perspective

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  • Réka Juhász
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    Abstract

    This article discusses the main factors considered in defining the country’s inflation target which was revised this year. Three key issues are covered: the theoretical and empirical literature dealing with the optimal level of inflation, international best practice and individual, country-specific factors that may justify deviation in any direction from best practice. The article finds that the 3% inflation target set by the MNB is consistent with all the three aspects reviewed and, consequently, contributes to the MNB achieving its primary statutory objective of price stability.

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    File URL: http://english.mnb.hu/Root/Dokumentumtar/ENMNB/Kiadvanyok/mnben_mnbszemle/mnben_szemle_cikkei/mnb_bull_2008_09_reka_juhasz_en.pdf
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    Bibliographic Info

    Article provided by Magyar Nemzeti Bank (the central bank of Hungary) in its journal MNB Bulletin.

    Volume (Year): 3 (2008)
    Issue (Month): 2 (September)
    Pages: 30-37

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    Handle: RePEc:mnb:bullet:v:3:y:2008:i:2:p:30-37

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    Web page: http://www.mnb.hu/
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    Related research

    Keywords: monetary policy; optimal rate of inflation.;

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    1. Dickens, William T. & Götte, Lorenz & Groshen, Erica L. & Holden, Steinar & Messina, Julián & Schweitzer, Mark E. & Turunen, Jarkko & Ward-Warmedinger, Melanie E., 2006. "How Wages Change: Micro Evidence from the International Wage Flexibility Project," IZA Discussion Papers 2487, Institute for the Study of Labor (IZA).
    2. Laurence Ball & N. Gregory Mankiw, 1994. "Asymmetric Price Adjustment and Economic Fluctuations," NBER Working Papers 4089, National Bureau of Economic Research, Inc.
    3. Bruno, Michael & Easterly, William, 1998. "Inflation crises and long-run growth," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 3-26, February.
    4. Burdekin, Richard C.K. & Denzau, Arthur T. & Keil, Manfred W. & Sitthiyot, Thitithep & Willett, Thomas D., 2004. "When does inflation hurt economic growth? Different nonlinearities for different economies," Journal of Macroeconomics, Elsevier, vol. 26(3), pages 519-532, September.
    5. Amato, Jeffery D. & Gerlach, Stefan, 2002. "Inflation targeting in emerging market and transition economies: Lessons after a decade," European Economic Review, Elsevier, vol. 46(4-5), pages 781-790, May.
    6. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
    7. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 1-76.
    8. Anne-Marie Brook & Özer Karagedikli & Dean Scrimgeour, 2002. "An optimal inflation target for New Zealand: lessons from the literature," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 65, September.
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    Cited by:
    1. Phiri, Andrew, 2013. "Inflation and Economic Growth in Zambia: A Threshold Autoregressive (TAR) Econometric Approach," MPRA Paper 52093, University Library of Munich, Germany.

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