Inflation inertia and the optimal hybrid inflation/price-level target

Øistein Røisland

No 2005/4, Working Paper from Norges Bank

Abstract: A hybrid inflation/price-level target combines elements of both inflation and price-level targets. The paper derives a hybrid target within a new Keynesian model with inflation persistence due to price indexation. The result generalizes a result by Vestin (2005) that the optimal policy could be implemented with a price-level targeting regime. We show that the optimal price-level drift in the hybrid target is equal to the degree of price indexation.

Keywords: Price-level target; Inflation persistence; Commitment (search for similar items in EconPapers)
JEL-codes: E52 E61 E63 (search for similar items in EconPapers)
Pages: 5 pages
Date: 2005-07-04
New Economics Papers: this item is included in nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:bno:worpap:2005_04

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