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Quantifying the Second-Round Effects of Supply-Side Shocks on Inflation

  • Tibor Hlédik
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    This paper uses a small-scale dynamic rational expectations model based on an open-economy version of Fuhrer-Moore-type staggered wage setting to quantify the second-round effects of selected supply-side shocks and of shocks to the nominal exchange rate on wages and subsequently on inflation. In order to analyse the desired reaction of the central bank to these shocks, optimal time-consistent policy rules are derived within the presented New-Keynesian framework. The conclusions presented in the paper suggest that the second-round effects of shocks to import prices and the nominal exchange rate on inflation should not be ignored in practical policy-making.

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    Article provided by University of Economics, Prague in its journal Prague Economic Papers.

    Volume (Year): 2004 (2004)
    Issue (Month): 2 ()
    Pages: 121-141

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    Handle: RePEc:prg:jnlpep:v:2004:y:2004:i:2:id:235:p:121-141
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    1. Söderlind, Paul, 1997. "Monetary Policy and the Fisher Effect," SSE/EFI Working Paper Series in Economics and Finance 159, Stockholm School of Economics, revised 04 Mar 1999.
    2. Nicoletta Batini & Andrew G Haldane, 1999. "Forward-looking rules for monetary policy," Bank of England working papers 91, Bank of England.
    3. Blake, Andrew P & Westaway, Peter F, 1996. "Credibility and the Effectiveness of Inflation Targeting Regimes," The Manchester School of Economic & Social Studies, University of Manchester, vol. 64(0), pages 28-50, Suppl..
    4. Mervyn A. King, 1996. "How should central banks reduce inflation? - Conceptual issues," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 25-52.
    5. Jeffrey C. Fuhrer & George R. Moore, 1993. "Inflation persistence," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
    6. Goodfriend, Marvin, 1991. "Interest rates and the conduct of monetary policy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 34(1), pages 7-30, January.
    7. Nicoletta Batini & Anthony Yates, 2001. "Hybrid inflation and price level targeting," Bank of England working papers 135, Bank of England.
    8. repec:nbr:nberre:0126 is not listed on IDEAS
    9. Gilles Oudiz & Jeffrey Sachs, 1985. "International Policy Coordination in Dynamic Macroeconomic Models," NBER Chapters, in: International Economic Policy Coordination, pages 274-330 National Bureau of Economic Research, Inc.
    10. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July.
    11. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
    12. repec:sae:niesru:v:174:y::i:1:p:80-91 is not listed on IDEAS
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