Inflation to target: what inflation to target?

Kevin Huang () and Zheng Liu

No RWP 03-10, Research Working Paper from Federal Reserve Bank of Kansas City

Abstract: This paper derives a central bank's objective function and optimal policy rule for an economy with both CPI and PPI inflation rates. It implements constrained-optimal policy rules with minimal information requirement, and evaluates the robustness of these simple rules when the central bank may not know the exact sources of shocks or nominal rigidities. One of the main findings is that monetary policy that ignores PPI inflation rate or PPI sector shocks can result in significant welfare loss.

Keywords: Monetary; policy (search for similar items in EconPapers)
Pages: 37 pages
Date: 2003-11-01
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
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Citations: View citations in EconPapers (2)

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