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Targeting Inflation in an Economy with Staggered Price Setting

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Author Info
Jordi Galí

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Abstract

The 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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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 123.

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Date of creation: Nov 2001
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Handle: RePEc:chb:bcchwp:123

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Kaushik Mitra & James Bullard, . "Learning About Monetary Policy Rules," Discussion Papers 00/41, Department of Economics, University of York. [Downloadable!]
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  2. Andrew Levin & Volker Wieland & John C. Williams, 1998. "Robustness of Simple Monetary Policy Rules under Model Uncertainty," NBER Working Papers 6570, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Julio J. Rotemberg & Michael Woodford, 1998. "Interest-Rate Rules in an Estimated Sticky Price Model," NBER Working Papers 6618, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Yun, Tack, 1996. "Nominal price rigidity, money supply endogeneity, and business cycles," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 345-370, April. [Downloadable!] (restricted)
  5. Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608.
  6. Gali, Jordi & Gertler, Mark & Lopez-Salido, J. David, 2001. "European inflation dynamics," European Economic Review, Elsevier, vol. 45(7), pages 1237-1270. [Downloadable!] (restricted)
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  7. Jordi Gali & Tommaso Monacelli, 1999. "Optimal Monetary Policy and Exchange Rate Volatility in a Small Open Economy," Boston College Working Papers in Economics 438, Boston College Department of Economics, revised 15 Nov 1999. [Downloadable!]
  8. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules And Macroeconomic Stability: Evidence And Some Theory," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 147-180, February. [Downloadable!] (restricted)
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  9. Michael Woodford, 1996. "Control of the Public Debt: A Requirement for Price Stability?," NBER Working Papers 5684, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July. [Downloadable!] (restricted)
  11. William Poole, 1999. "Monetary policy rules?," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 3-12. [Downloadable!]
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  1. Federico Ravenna, 2005. "The European Monetary Union as a Commitment Device for New EU Member States," Working Papers 98, Oesterreichische Nationalbank (Austrian Central Bank). [Downloadable!]
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  2. Fabrizio CORICELLI & Bostjan JAZBEC & Igor MASTEN, 2004. "Exchange Rate Pass-Through in Acceding Countries: The Role of Exchange Rate Regimes," Economics Working Papers ECO2004/16, European University Institute. [Downloadable!]
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