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Optimal Monetary Policy Under Inflation Targeting: Is Zero the Optimal Perception of Inflation Inertia?

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Author Info
Páez-Farrell, Juan () (Cardiff Business School)

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Abstract

Recent research has suggested that in deriving optimal policy under discretion, policymakers should react as if there were no structural inflation persistence in order to improve welfare. This paper considers whether such a strong result extends to an inflation targeting central bank with a more general Phillips curve formulation. The findings indicate that if anything, a central banker that assumes a high degree of inflation inertia is often preferable.

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File URL: http://www.cardiff.ac.uk/carbs/econ/workingpapers/papers/E2007_17.pdf
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Publisher Info
Paper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2007/17.

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Length: 13 pages
Date of creation: Jun 2007
Date of revision:
Handle: RePEc:cdf:wpaper:2007/17

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Related research
Keywords: optimal monetary policy discretion uncertainty inflation persistence

Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
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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