On Quality Bias and Inflation Targets

Martín Uribe () and Schmitt-Grohé, Stephanie
Authors registered in the RePEc Author Service: Stephanie Schmitt-Grohe

No 7550, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper studies whether the central bank should adjust its inflation target to account for the systematic upward bias in measured inflation due to quality improvements in consumption goods. We show that the answer to this question depends on what prices are assumed to be sticky. If nonquality-adjusted prices are assumed to be sticky, then the inflation target should not be corrected. If, on the other hand, quality-adjusted (or hedonic) prices are assumed to be sticky, then the inflation target should be raised by the magnitude of the bias.

Keywords: Inflation targets; Quality bias; Ramsey policy (search for similar items in EconPapers)
JEL-codes: E52 E6 (search for similar items in EconPapers)
Date: 2009-11
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: On quality bias and inflation targets (2012)
Working Paper: On Quality Bias and Inflation Targets (2009)
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