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Conservative Central Banks, and Nominal Growth, Exchange Rate and Inflation Targets

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Author Info
Ronald A. Ratti () (Department of Economics, University of Missouri-Columbia)
Sang-Kun Bae
Abstract

A framework is developed in which inflation biases with different target variables are compared. A nominal growth target measured in consumer prices may yield less stabilization bias than a nominal income growth target. Exchange rate and inflation targets result in less stabilization bias than an income growth target the more important terms of trade stabilization. Persistence in output causes excessive stabilization of productivity shocks and of shocks to the terms of trade under discretion. An inflation-weight conservative central bank is more likely under an inflation target than under an exchange rate target and less likely under a nominal income growth target.

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Paper provided by Department of Economics, University of Missouri in its series Working Papers with number 0423.

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Length: 35 pgs.
Date of creation: 21 Dec 2004
Date of revision: 15 Oct 2006
Handle: RePEc:umc:wpaper:0423

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Related research
Keywords: State-contingent rules; exchange rate target; inflation target; nominal income target; conservative central banks;

Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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    Other versions:
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    Other versions:
  6. Svensson, Lars E O, 1995. "Optimal Inflation Targets, 'Conservative' Central Banks, and Linear Inflation Contracts," CEPR Discussion Papers 1249, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-67, March. [Downloadable!] (restricted)
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  9. repec:rus:hseeco:181565 is not listed on IDEAS
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  11. 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!]
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    Other versions:
  13. Persson, Torsten & Tabellini, Guido, 1993. "Designing institutions for monetary stability," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 53-84, December. [Downloadable!] (restricted)
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