Targeting Inflation in an Economy with Staggered Price Setting
The present paper inquiries into the nature and workings of an inflation targeting regime using as a reference framework an optimizing monetary business cycle model with staggered price setting. The interest rate rule that keeps inflation constant at its target level (optimal inflation targeting rule) is derived. The properties of two simpler rules - namely, a version of the Taylor rule and a proposed forward looking extension - are analyzed and compared with those of the optimal rule. The implications of the presence of data noise for the performance of those rules are also examined.
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NBER Working Papers
7551, National Bureau of Economic Research, Inc.
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Economics Working Papers
350, Department of Economics and Business, Universitat Pompeu Fabra, revised May 1999.
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- Clarida, Richard & Galí, Jordi & Gertler, Mark, 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," CEPR Discussion Papers 1908, C.E.P.R. Discussion Papers.
- Richard Clarida & Jordi Gali & Mark Gertler, 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," NBER Working Papers 6442, National Bureau of Economic Research, Inc.
- Clarida, R. & Gali, J. & Gertler, M., 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and some Theory," Working Papers 98-01, C.V. Starr Center for Applied Economics, New York University.
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