Targeting Inflation in an Economy with Staggered Price Setting
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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Bibliographic InfoPaper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 123.
Date of creation: Nov 2001
Date of revision:
Other versions of this item:
- Jordi Gali, 2002. "Targeting Inflation in a Economy with Staggered Price Setting," Central Banking, Analysis, and Economic Policies Book Series, in: Norman Loayza & Raimundo Soto & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.), Inflation Targeting: Desing, Performance, Challenges, edition 1, volume 5, chapter 6, pages 271-294 Central Bank of Chile.
- NEP-ALL-2004-02-10 (All new papers)
- NEP-DGE-2002-02-15 (Dynamic General Equilibrium)
- NEP-MON-2002-02-15 (Monetary Economics)
- NEP-PKE-2002-02-15 (Post Keynesian Economics)
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