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Inflation inertia and the optimal hybrid inflation/price-level target

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Author Info
Øistein Røisland () (Norges Bank)

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Abstract

A hybrid inflation/price-level target combines elements of both inflation and price-level targets. The paper derives a hybrid target within a new Keynesian model with inflation persistence due to price indexation. The result generalizes a result by Vestin (2005) that the optimal policy could be implemented with a price-level targeting regime. We show that the optimal price-level drift in the hybrid target is equal to the degree of price indexation.

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File URL: http://www.norges-bank.no/upload/import/publikasjoner/arbeidsnotater/pdf/arb-2005-04.pdf
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Publisher Info
Paper provided by Norges Bank in its series Working Paper with number 2005/4.

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Length: 5 pages
Date of creation: 04 Jul 2005
Date of revision:
Handle: RePEc:bno:worpap:2005_04

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Related research
Keywords: Price-level target; Inflation persistence; Commitment;

Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization

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This page was last updated on 2009-11-19.

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