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Indexation, Inflation Targeting cum Output Stabilization & Inflation Fluctuations

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  • J.A. Attey
  • C.G. De Vries

Abstract

Textbook NK macro models have expected future inflation in the AS and IS schedules. Empirical evidence suggests that lagged inflation has higher relevance for aggregate supply. We derive an AS curve with lagged inflation expectations assuming that wage indexation is the outcome of an uncertain centralized bargaining process European style. Subsequently, we show that the FED-based hybrid objective and ECB inflation objective imply the same interest rate targeting rule. Our AS curve exhibits Brainard type multiplicative uncertainty. It is shown that the popular linearized solution around the deterministic steady state can differ widely from the truly stochastic stationary solution.

Suggested Citation

  • J.A. Attey & C.G. De Vries, 2011. "Indexation, Inflation Targeting cum Output Stabilization & Inflation Fluctuations," Review of Business and Economic Literature, Intersentia, vol. 56(4), pages 394-405, December.
    • Handle: RePEc:sen:rebelj:v:56:i:4:y:2011:p:394-405
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    Cited by:

    1. Jonathan A. Attey & Casper G. de Vries, 2016. "Monetary Policy in the Presence of Random Wage Indexation," Tinbergen Institute Discussion Papers 16-086/VI, Tinbergen Institute.
    2. Jonathan A. Attey, 2016. "Time-Varying Degree of Wage Indexation and the New Keynesian Wage Phillips Curve," Tinbergen Institute Discussion Papers 16-102/VI, Tinbergen Institute.

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