Conservative central Banks and nominal growth, exchange rate, and inflation targets

Sang-Kun Bae, Ronald A. Ratti

    Research output: Contribution to journalArticle

    Abstract

    A framework is developed in which inflation biases with different target variables are compared. A nominal growth target measured in consumer prices may yield less stabilization bias than a nominal income growth target. Exchange rate and inflation targets result in less stabilization bias than an income growth target the more important the terms-of-trade stabilization. Persistence in output causes excessive stabilization of productivity shocks and of shocks to the terms of trade under discretion. An inflation-weight conservative central bank is more likely under an inflation target than under an exchange rate target, and less likely under a nominal income growth target.
    Original languageEnglish
    Number of pages20
    JournalEconomica
    Publication statusPublished - 2008

    Keywords

    • banks and banking, central
    • foreign exchange rates
    • income
    • inflation (finance)
    • macroeconomics
    • monetary policy

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