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How should central banks define price stability?

  • Mark A. Wynne

It is now generally accepted that the primary objective of central banks should be the maintenance of price stability. This paper considers the question of how central banks should define price stability. I address three specific questions. First, should central banks target broad or narrow measures of inflation? Second, should central banks target headline or core measure of inflation? And third, should central banks define price stability as prevailing at some positive measured rate of inflation?

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Paper provided by Federal Reserve Bank of Dallas in its series Globalization and Monetary Policy Institute Working Paper with number 08.

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Date of creation: 2008
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Handle: RePEc:fip:feddgw:08
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  11. Karl-Heinz Todter & Gerhard Ziebarth, 1999. "Price Stability versus Low Inflation in Germany: An Analysis of Costs and Benefits," NBER Chapters, in: The Costs and Benefits of Price Stability, pages 47-94 National Bureau of Economic Research, Inc.
  12. Shigenori Shiratsuka, 1999. "Measurement errors in Japanese Consumer Price Index," Working Paper Series WP-99-2, Federal Reserve Bank of Chicago.
  13. Mark W. Watson & Ricardo Reis, 2007. "Measuring changes in the value of the numeraire," 2007 Meeting Papers 324, Society for Economic Dynamics.
  14. Mark A. Wynne & Diego Rodriguez-Palenzuela, 2002. "Measurement bias in the HICP: what do we know and what do we need to know?," Working Papers 0206, Federal Reserve Bank of Dallas.
  15. Zsolt Becsi, 1994. "Indicators of the general price level and inflation," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q IV, pages 27-39.
  16. Colm McCarthy, 2007. "Owner-Occupied Housing Costs and Bias in the Irish Consumer Price Index," Working Papers 200707, School Of Economics, University College Dublin.
  17. Juan Dolado, 1999. "A Cost-Benefit Analysis of Going from Low Inflation to Price Stability in Spain," NBER Chapters, in: The Costs and Benefits of Price Stability, pages 95-132 National Bureau of Economic Research, Inc.
  18. Robert Rich & Charles Steindel, 2005. "A review of core inflation and an evaluation of its measures," Staff Reports 236, Federal Reserve Bank of New York.
  19. McCarthy, Colm, 2007. "Owner-Occupied Housing Costs and Bias in the Consumer Price Index," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI), vol. 2007(3-Autumn), pages 83-88.
  20. Stephen G. Cecchetti & Mark A. Wynne, 2003. "Inflation measurement and the ECB's pursuit of price stability: a first assessment," Economic Policy, CEPR;CES;MSH, vol. 18(37), pages 395-434, October.
  21. Marvin Goodfriend & Robert King, 1997. "The New Neoclassical Synthesis and the Role of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 231-296 National Bureau of Economic Research, Inc.
  22. N. Neil K. Khettry & Loretta J. Mester, 2006. "Core inflation as a predictor of total inflation," Research Rap Special Report, Federal Reserve Bank of Philadelphia, issue Apr.
  23. Jim Dolmas, 2005. "Trimmed mean PCE inflation," Working Papers 0506, Federal Reserve Bank of Dallas.
  24. Erling Røed Larsen, 2007. "Does the CPI Mirror the Cost of Living? Engel's Law Suggests Not in Norway," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(1), pages 177-195, 03.
  25. Hasan Bakhshi & Andrew Haldane & Neal Hatch, 1999. "Some Costs and Benefits of Price Stability in the United Kingdom," NBER Chapters, in: The Costs and Benefits of Price Stability, pages 133-198 National Bureau of Economic Research, Inc.
  26. Edwin M. Truman, 2003. "Inflation Targeting in the World Economy," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 346, May.
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  28. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  29. Nathalie Girouard & Mike Kennedy & Paul van den Noord & Christophe André, 2006. "Recent House Price Developments: The Role of Fundamentals," OECD Economics Department Working Papers 475, OECD Publishing.
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