Inflation Band Targeting and Optimal Inflation Contracts

Niklas Johan Westelius () and Frederic Mishkin ()

No 416, Hunter College Department of Economics Working Papers from Hunter College: Department of Economics

Abstract: In this paper we examine how target ranges work in the context of a Barro-Gordon (1983) type model, in which the time-inconsistency problem stems from political pressures from the government. We show that target ranges turn out to be an excellent way to cope with the time-inconsistency problem, and achieve many of the benefits that arise under practically less attractive solutions such as the conservative central banker and optimal inflation contracts. Our theoretical model also shows how an inflation targeting range should be set and how it should respond to changes in the nature of shocks to the economy

Keywords: Inflation Band Targeting; Inflation Contract; Time-inconsistent policy (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2006
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Related works:
Working Paper: Inflation Band Targeting and Optimal Inflation Contracts (2006)
Journal Article: Inflation Band Targeting and Optimal Inflation Contracts (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:htr:hcecon:416

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