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Inflation Inertia and Optimal Delegation of Monetary Policy

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  • Keiichi Morimoto

    (Graduate School of Economics, Osaka University)

Abstract

This paper analyzes the relationship between the optimal weight on output gap in the central bank fs loss function and the degree of inertia in a hybrid version of New Keynesian model with a pure discretionary inflation targeting. I present the policy recommendations as to the weight on output gap in the presence of endogenous persistence in inflation dynamics. Especially, I show that under endogenous persistence of inflation dynamics, even in discretionary monetary policy regime, a Rogoff fs (1985) conservative central banker does not necessarily improve social welfare.

Suggested Citation

  • Keiichi Morimoto, 2009. "Inflation Inertia and Optimal Delegation of Monetary Policy," Discussion Papers in Economics and Business 09-05, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:0905
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    References listed on IDEAS

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    1. Fuhrer, Jeffrey C, 1997. "The (Un)Importance of Forward-Looking Behavior in Price Specifications," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 338-350, August.
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    5. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    6. Henrik Jensen, 2002. "Targeting Nominal Income Growth or Inflation?," American Economic Review, American Economic Association, vol. 92(4), pages 928-956, September.
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    Keywords

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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