Inflation Targets, Credibility and Persistence In a Simple Sticky-Price Framework

Jeremy Rudd and Karl Whelan ()
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Jeremy Rudd: Federal Reserve Board

No 6/RT/03, Research Technical Papers from Central Bank of Ireland

Abstract: An important trend in macroeconomic research in recent years involves the increased use of optimization-based models with nominal rigidities (such as sticky prices) to analyse how monetary policy affects the economy and how optimal policy should be designed. This paper presents a re-formulated version of a commonly-used baseline sticky-price model that has been extended to account for variations over time in the central bank's inflation target. We derive a closed-form solution for the model and analyse its properties under various parameter values. The model is used to explore topics relating to the effects of disinflationary monetary policies and inflation persistence. In particular, we employ the model to illustrate and assess the critique that standard sticky-price models generate counterfactual predictions for the effects of monetary policy.

Pages: 34 pages
Date: 2003-08
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Citations: View citations in EconPapers (1)

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https://centralbank.ie/docs/default-source/publica ... whelan).pdf?sfvrsn=4 (application/pdf)

Related works:
Working Paper: Inflation targets, credibility, and persistence in a simple sticky-price framework (2003)
Working Paper: Inflation targets, credibility, and persistence in a simple sticky-price framework (2003)
Working Paper: Inflation targets, credibility and persistence in a simple sticky-price framework (2003)
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