Inflation Targets in a Monetary Union with Endogenous Entry

Stéphane Auray, Aurélien Eyquem () and Jean-Christophe Poutineau ()
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Aurélien Eyquem: GATE, UMR 5824, Université de Lyon and Ecole Normale Supérieure Lettres et Sciences Humaines, France

Cahiers de recherche from Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke

Abstract: This paper shows that in a monetary union the interest rate rule of the Central Bank should react to the in°ation rate of the Harmonized Index of Consumption Price (HICP) rather than to the inflation rate of the Welfare-Based Consumption Price (WBCP). In a two{country general equilibrium model of the EMU with endogenous entry, we compare both monetary policy regimes and find that targeting the HICP inflation rate reduces the volatility of the Producer Price Index (PPI) in°ation rate and the volatility of the nominal .

Keywords: monetary union; interest rate rule; harmonized index of consumption price (search for similar items in EconPapers)
JEL-codes: E51 E58 F36 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2009
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http://pages.usherbrooke.ca/gredi/wpapers/GREDI-0902.pdf First version, 2009 (application/pdf)

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Persistent link: http://EconPapers.repec.org/RePEc:shr:wpaper:09-02

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