Targeting Inflation in a Economy with Staggered Price Setting
In: Inflation Targeting: Desing, Performance, Challenges
AbstractThe present paper inquiries into the nature and workings of an inflation targeting regime using as a reference framework an optimizing monetary business cycle model with staggered price setting. The interest rate rule that keeps inflation constant at its target level (optimal inflation targeting rule) is derived. The properties of two simpler rules - namely, a version of the Taylor rule and a proposed forward looking extension - are analyzed and compared with those of the optimal rule. The implications of the presence of data noise for the performance of those rules are also examined.
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This chapter was published in: Norman Loayza & Raimundo Soto & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.) Inflation Targeting: Desing, Performance, Challenges, , chapter 6, pages 271-294, 2002.
This item is provided by Central Bank of Chile in its series Central Banking, Analysis, and Economic Policies Book Series with number v05c06pp271-294.
Other versions of this item:
- Jordi Galí, 2001. "Targeting Inflation in an Economy with Staggered Price Setting," Working Papers Central Bank of Chile 123, Central Bank of Chile.
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