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 language | English |
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Number of pages | 20 |
Journal | Economica |
Publication status | Published - 2008 |
Keywords
- banks and banking, central
- foreign exchange rates
- income
- inflation (finance)
- macroeconomics
- monetary policy