Quantifying the Second-Round Effects of Supply-Side Shocks on Inflation

Tibor Hlédik

Prague Economic Papers, 2004, vol. 2004, issue 2, 121-141

Abstract: This paper uses a small-scale dynamic rational expectations model based on an openeconomy version of Fuhrer-Moore-type staggered wage setting to quantify the secondround effects of selected supply-side shocks and of shocks to the nominal exchange rate on wages and subsequently on inflation. In order to analyse the desired reaction of the central bank to these shocks, optimal time-consistent policy rules are derived within the presented New-Keynesian framework. The conclusions presented in the paper suggest that the second-round effects of shocks to import prices and the nominal exchange rate on inflation should not be ignored in practical policy-making.

Keywords: monetary policy; inflation targeting; optimal policy rules (search for similar items in EconPapers)
JEL-codes: E31 E52 F41 (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (1)

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DOI: 10.18267/j.pep.235

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