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

  • SANG-KUN BAE
  • RONALD A. RATTI

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 the 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. Copyright (c) The London School of Economics and Political Science 2007.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0335.2007.00628.x
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Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 75 (2008)
Issue (Month): 299 (08)
Pages: 549-568

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Handle: RePEc:bla:econom:v:75:y:2008:i:299:p:549-568
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