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Inflation variability between central bank's preferences and the structure of the economy: A note

Listed author(s):
  • Sweidan, Osama D.

The current paper seeks to build a theoretical explanation to understand why many central banks failed to reduce inflation variability despite having the desire. The result proves that central bank's preferences are a necessary condition but not sufficient to guarantee lower inflation variability. The structure of the economy and the types of the shocks are significant factors.

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File URL: http://www.sciencedirect.com/science/article/pii/S0264999310001057
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Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 28 (2011)
Issue (Month): 1 ()
Pages: 630-636

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Handle: RePEc:eee:ecmode:v:28:y:2011:i:1:p:630-636
DOI: 10.1016/j.econmod.2010.06.008
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

References listed on IDEAS
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  1. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
  2. Marc-André Gosselin, 2007. "Central Bank Performance under Inflation Targeting," Staff Working Papers 07-18, Bank of Canada.
  3. Lee, Jim, 1999. "The inflation and output variability tradeoff: evidence from a Garch model," Economics Letters, Elsevier, vol. 62(1), pages 63-67, January.
  4. Philip Arestis & Kostas Mouratidis, 2004. "Is There a Trade-Off Between Inflation Variability and Output-Gap Variability in the EMU Countries?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 51(5), pages 691-706, November.
  5. Marc-André Gosselin, 2007. "Central Bank Performance under Inflation Targeting," Bank of Canada Review, Bank of Canada, vol. 2007(Winter), pages 17-27.
  6. Jim Lee, 2004. "The Inflation-Output Variability Trade-off: OECD Evidence," Contemporary Economic Policy, Western Economic Association International, vol. 22(3), pages 344-356, 07.
  7. Ruge-Murcia, Francisco J, 2003. " Inflation Targeting under Asymmetric Preferences," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(5), pages 763-785, October.
  8. Scott Roger & Mark R. Stone, 2005. "On Target? the International Experience with Achieving Inflation Targets," IMF Working Papers 05/163, International Monetary Fund.
  9. Fuhrer, Jeffrey C & Moore, George R, 1995. "Monetary Policy Trade-offs and the Correlation between Nominal Interest Rates and Real Output," American Economic Review, American Economic Association, vol. 85(1), pages 219-239, March.
  10. Stephen G. Cecchetti & Michael Ehrmann, 2002. "Does Inflation Targeting Increase Output Volatility?: An International Comparison of Policymakers' Preferences and Outcomes," Central Banking, Analysis, and Economic Policies Book Series,in: Norman Loayza & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.), Monetary Policy: Rules and Transmission Mechanisms, edition 1, volume 4, chapter 9, pages 247-274 Central Bank of Chile.
  11. Ball, Laurence, 1992. "Why does high inflation raise inflation uncertainty?," Journal of Monetary Economics, Elsevier, vol. 29(3), pages 371-388, June.
  12. Christoffersen, Peter F. & Diebold, Francis X., 1997. "Optimal Prediction Under Asymmetric Loss," Econometric Theory, Cambridge University Press, vol. 13(06), pages 808-817, December.
  13. Alain Ize, 2007. "Spending Seigniorage: Do Central Banks Have a Governance Problem?," IMF Staff Papers, Palgrave Macmillan, vol. 54(3), pages 563-589, July.
  14. Lars E. O. Svensson, 2007. "Optimal inflation Targeting: Further Developments of Inflation Targeting," Central Banking, Analysis, and Economic Policies Book Series,in: Frederic S. Miskin & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.), Monetary Policy under Inflation Targeting, edition 1, volume 11, chapter 6, pages 187-225 Central Bank of Chile.
  15. Jim Lee, 2002. "The Inflation-Output Variability Tradeoff and Monetary Policy: Evidence from a GARCH Model," Southern Economic Journal, Southern Economic Association, vol. 69(1), pages 175-188, July.
  16. Fuhrer, Jeffrey C, 1997. "Inflation/Output Variance Trade-Offs and Optimal Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(2), pages 214-234, May.
  17. A. Robert Nobay & David A. Peel, 2003. "Optimal Discretionary Monetary Policy in a Model of Asymmetric Central Bank Preferences," Economic Journal, Royal Economic Society, vol. 113(489), pages 657-665, 07.
  18. repec:ebl:ecbull:v:5:y:2005:i:12:p:1-6 is not listed on IDEAS
  19. Osama Sweidan & Fadwa Kalaji, 2005. "The central bank cost constraint and output-inflation variability: a note on Cecchetti and Ehrmann 2000," Economics Bulletin, AccessEcon, vol. 5(12), pages 1-6.
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