Mechanisms for Achieving Monetary Stability: Inflation Targeting versus the ERM

Matthew Canzoneri, Charles Nolan and Anthony Yates (anthony_yates@yahoo.com)

Journal of Money, Credit and Banking, 1997, vol. 29, issue 1, 46-60

Abstract: First, the authors modify the Barro-Gordon model so that a credibility-stabilization trade-off will remain, even when a performance contract of the type envisaged by Carl Walsh (1995) is imposed on the central bank governor. They do this by modeling a real interest rate bias along with the inflation bias. Then, the authors discuss how various inflation penalties might actually be imposed on a central bank and ask whether 'inflation targeting' (supported by one or another of the penalties) is likely to bring a better resolution to the credibility-stabilization trade-off than the ERM. Copyright 1997 by Ohio State University Press.

Date: 1997
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Working Paper: Mechanisms for Achieving Monetary Stability: Inflation Targeting Versus the ERM (1996)
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