Targeting Inflation in an Economy with Staggered Price Setting

Jordi Galí

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: The present paper inquiries into the nature and workings of an inflation targeting regime using as a reference framework an optimizing monetary business cycle model with staggered price setting. The interest rate rule that keeps inflation constant at its target level (optimal inflation targeting rule) is derived. The properties of two simpler rules - namely, a version of the Taylor rule and a proposed forward looking extension - are analyzed and compared with those of the optimal rule. The implications of the presence of data noise for the performance of those rules are also examined.

Date: 2001-11
New Economics Papers: this item is included in nep-dge, nep-mon and nep-pke
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Chapter: Targeting Inflation in a Economy with Staggered Price Setting (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:chb:bcchwp:123

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