Can inflation targeting mitigate monetary policy time-inconsistency?

Gabriel Montes

Journal of Economic and Financial Studies (JEFS), 2014, vol. 2, issue 2, 15-25

Abstract: Although the adoption of inflation targeting can, on average, bring benefits to developing countries, however, adopting this scheme is not necessarily sufficient to mitigate the time-inconsistency problem of monetary policy. The present paper makes use of two theoretical models in order to analyze for the Brazilian case whether it is possible for the monetary authority to conduct time-inconsistent monetary policies even under inflation targeting. The results obtained for Brazil allow one to conjecture that the traditional argument that the adoption of inflation targeting can avoid the time-inconsistency problem is not necessarily true.

Keywords: Cointegration; Monetary policy; Inflation targeting time-inconsistency. (search for similar items in EconPapers)
JEL-codes: E31 E52 E61 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:lrc:lareco:v:2:y:2014:i:2:p:15-25

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