What Measure of Inflation Should a Central Bank Target?

N. Gregory Mankiw and Ricardo Reis

Scholarly Articles from Harvard University Department of Economics

Abstract: This paper assumes that a central bank commits itself to maintaining an inflation target and then asks what measure of the inflation rate the central bank should use if it wants to maximize economic stability. The paper first formalizes this problem and examines its microeconomic foundations. It then shows how the weight of a sector in the stability price index depends on the sector's characteristics, including size, cyclical sensitivity, sluggishness of price adjustment, and magnitude of sectoral shocks. When a numerical illustration of the problem is calibrated to U.S. data, one tentative conclusion is that a central bank that wants to achieve maximum stability of economic activity should use a price index that gives substantial weight to the level of nominal wages.

Date: 2003
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (128)

Published in Journal of the European Economic Association

Downloads: (external link)
http://dash.harvard.edu/bitstream/handle/1/3415322/Mankiw_WhatMeasure.pdf (application/pdf)

Related works:
Journal Article: What Measure of Inflation Should a Central Bank Target? (2003)
Working Paper: What measure of inflation should a central bank target? (2002)
Working Paper: What Measure of Inflation Should a Central Bank Target? (2002)
Working Paper: What Measure of Inflation Should a Central Bank Target? (2002)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hrv:faseco:3415322

Access Statistics for this paper

More papers in Scholarly Articles from Harvard University Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Office for Scholarly Communication ().