Inflation Targeting and Q Volatility in Small Open Economies

Paul McNelis () and Guay C. Lim ()

No 505, Econometric Society 2004 Far Eastern Meetings from Econometric Society

Abstract: This paper examines the welfare implications of managing Q with inflation targeting by monetary authorities who have to "learn" the laws of motion for both inflation and the rate of growth of Q. Our results show that the Central Bank can achieve great success in reducing the volatility of GDP growth with basically the same inflation volatility, if it incorporates this additional target into its policy regime. However, the welfare effects are generally lower, in terms of consumption, when the monetary authorithy reacts to Q growth as well as inflation

Keywords: inflation targets; Tobin's Q; learning; monetary policy (search for similar items in EconPapers)
JEL-codes: E52 F37 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-mon
Date: 2004-08-11
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Working Paper: Inflation Targeting and Q Volatility in Small Open Economies (2004)
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Persistent link: http://EconPapers.repec.org/RePEc:ecm:feam04:505

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