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The Optimal Perception of Inflation Persistence is Zero

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  • Kai Leitemo

Abstract

This study shows that, in an economy with inflation persistence, it is always welfare improving for a central bank that operates under discretion to behave as if there were no inflation persistence. Under reasonable assumptions about inflation persistence, all of the inefficiency associated with discretionary policymaking is then removed.

Suggested Citation

  • Kai Leitemo, 2007. "The Optimal Perception of Inflation Persistence is Zero," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(1), pages 107-113, March.
    • Handle: RePEc:bla:scandj:v:109:y:2007:i:1:p:107-113
    DOI: 10.1111/j.1467-9442.2007.00483.x
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    Cited by:

    1. Meller, Barbara & Nautz, Dieter, 2009. "The impact of the European Monetary Union on inflation persistence in the Euro area," SFB 649 Discussion Papers 2009-037, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    2. Juan Paez-Farrell, 2009. "Timeless perspective vs discretionary policymaking when the degree of inflation persistence is unknown," Discussion Paper Series 2009_14, Department of Economics, Loughborough University, revised Sep 2009.
    3. Meller, Barbara & Nautz, Dieter, 2012. "Inflation persistence in the Euro area before and after the European Monetary Union," Economic Modelling, Elsevier, vol. 29(4), pages 1170-1176.
    4. Paez-Farrell, Juan, 2011. "Timeless perspective versus discretionary policymaking when the degree of inflation persistence is unknown," Economic Modelling, Elsevier, vol. 28(6), pages 2432-2438.
    5. Nasir, Muhammad Ali & Huynh, Toan Luu Duc & Yarovaya, Larisa, 2020. "Inflation targeting & implications of oil shocks for inflation expectations in oil-importing and exporting economies: Evidence from three Nordic Kingdoms," International Review of Financial Analysis, Elsevier, vol. 72(C).
    6. repec:hum:wpaper:sfb649dp2009-037 is not listed on IDEAS
    7. P ez-Farrell, Juan, 2007. "Optimal Monetary Policy Under Inflation Targeting: Is Zero the Optimal Perception of Inflation Inertia?," Cardiff Economics Working Papers E2007/17, Cardiff University, Cardiff Business School, Economics Section.
    8. Frey, Rainer, 2009. "The design of an asymmetric currency union with shock persistence and spillovers: Short-term versus medium-term," European Journal of Political Economy, Elsevier, vol. 25(1), pages 85-97, March.
    9. Kurozumi, Takushi, 2010. "Optimal Monetary Policy Under Parameter Uncertainty In A Simple Microfounded Model," Macroeconomic Dynamics, Cambridge University Press, vol. 14(2), pages 257-268, April.

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