Optimal Monetary Policy Under Inflation Targeting: Is Zero the Optimal Perception of Inflation Inertia?

Juan P ez-Farrell ()
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Juan P ez-Farrell: Cardiff Business School
Authors registered in the RePEc Author Service: Juan Paez-Farrell

No E2007/17, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: Recent research has suggested that in deriving optimal policy under discretion, policymakers should react as if there were no structural inflation persistence in order to improve welfare. This paper considers whether such a strong result extends to an inflation targeting central bank with a more general Phillips curve formulation. The findings indicate that if anything, a central banker that assumes a high degree of inflation inertia is often preferable.

Keywords: optimal monetary policy; discretion; uncertainty; inflation persistence (search for similar items in EconPapers)
JEL-codes: E31 E52 E61 E63 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2007-06
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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