Inflation persistence, backward-looking firms, and monetary policy in an input-output economy
This paper studies the implications of inflation persistence (generated by backward-looking price setters) for monetary policy in a New Keynesian "input-output" model--a model with sticky prices in both intermediate and final goods sectors. Optimal policy under commitment depends on the degree of inflation persistence in both sectors. Under discretion, speed-limit targeting--targeting the change in the output gap--outperforms price-level and inflation targeting in the presence of inflation persistence. If inflation persistence is low in the intermediate goods sector, price-level targeting outperforms inflation targeting despite high inflation persistence in the final goods sector.
|Date of creation:||2010|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.federalreserve.gov/
More information through EDIRC
|Order Information:||Web: http://www.federalreserve.gov/pubs/feds/fedsorder.html|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gomme, Paul & Rupert, Peter, 2007.
"Theory, measurement and calibration of macroeconomic models,"
Journal of Monetary Economics,
Elsevier, vol. 54(2), pages 460-497, March.
- Paul Gomme & Peter Rupert, 2005. "Theory, measurement, and calibration of macroeconomic models," Working Paper 0505, Federal Reserve Bank of Cleveland.
- Carlton, Dennis W, 1986.
"The Rigidity of Prices,"
American Economic Review,
American Economic Association, vol. 76(4), pages 637-58, September.
- Glenn D. Rudebusch, 2000.
"Assessing nominal income rules for monetary policy with model and data uncertainty,"
Working Paper Series
2000-03, Federal Reserve Bank of San Francisco.
- Glenn D. Rudebusch, 2002. "Assessing Nominal Income Rules for Monetary Policy with Model and Data Uncertainty," Economic Journal, Royal Economic Society, vol. 112(479), pages 402-432, April.
- Rudebusch, Glenn D., 2000. "Assessing nominal income rules for monetary policy with model and data uncertainty," Working Paper Series 0014, European Central Bank.
- Glenn Rudebusch, 2000. "Assessing Nominal Income Rules for Monetary Policy with Model and Data Uncertainty," Econometric Society World Congress 2000 Contributed Papers 0065, Econometric Society.
- Nessen, Marianne & Vestin, David, 2005.
"Average Inflation Targeting,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 37(5), pages 837-63, October.
- John M. Roberts, 2001.
"How well does the New Keynesian sticky-price model fit the data?,"
Finance and Economics Discussion Series
2001-13, Board of Governors of the Federal Reserve System (U.S.).
- Roberts John M., 2005. "How Well Does the New Keynesian Sticky-Price Model Fit the Data?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-39, September.
- Kevin X. D. Huang & Zheng Liu, 2004.
"Inflation targeting: what inflation rate to target?,"
04-6, Federal Reserve Bank of Philadelphia.
- Huang, Kevin X.D. & Liu, Zheng, 2005. "Inflation targeting: What inflation rate to target?," Journal of Monetary Economics, Elsevier, vol. 52(8), pages 1435-1462, November.
- Kevin X. D. Huang & Zheng Liu, 2003. "Inflation Targeting: What Inflation Rate to Target?," Emory Economics 0318, Department of Economics, Emory University (Atlanta).
- Jeffery D. Amato & Thomas Laubach, 2002.
"Rule-of-thumb behaviour and monetary policy,"
Finance and Economics Discussion Series
2002-5, Board of Governors of the Federal Reserve System (U.S.).
When requesting a correction, please mention this item's handle: RePEc:fip:fedgfe:2010-55. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kris Vajs)
If references are entirely missing, you can add them using this form.