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Inflation Targeting and Output Stability

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  • Esteban Jadresic
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    Abstract

    This paper reexamines the effects of inflation targeting on output stability. It considers an economy with staggered price setting that is exposed to price shocks and where the policymaker cannot observe the current realizations of aggregate output and inflation. The paper shows that, if some price shocks can be anticipated, the effects of inflation targeting depend critically on the inflation indicator being targeted. Specifically, targeting headline inflation can severely destabilize output, while targeting inflation indicator of sticky prices may eliminate that problem and make the response of the output gap to aggregate shocks short-lived.

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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=3013
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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 99/61.

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    Length: 39
    Date of creation: 01 Apr 1999
    Date of revision:
    Handle: RePEc:imf:imfwpa:99/61

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    Cited by:
    1. Sergio Clavijo, 2000. "Reflexiones Sobre Política Monetaria E "Inflación Objetivo" En Colombia," BORRADORES DE ECONOMIA 003423, BANCO DE LA REPÚBLICA.
    2. Andrés Elberg & Vittorio Corbo & José Tessada, 1999. "Monetary Policy in Latin America: Underpinnings and Procedures," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 36(109), pages 897-927.
    3. Sergio Clavijo, . "Reflexiones Sobre Política Monetaria e "Inflación Objetivo" en Colombia," Borradores de Economia 141, Banco de la Republica de Colombia.

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