Inflation Band Targeting and Optimal Inflation Contracts
Frederic Mishkin () and
Niklas Westelius ()
No 12384, NBER Working Papers from National Bureau of Economic Research, Inc
In this paper we examine how target ranges work in the context of a Barro-Gordon (1983) type model, in which the time-inconsistency problem stems from political pressures from the government. We show that target ranges turn out to be an excellent way to cope with the time-inconsistency problem, and achieve many of the benefits that arise under practically less attractive solutions such as the conservative central banker and optimal inflation contracts. Our theoretical model also shows how an inflation targeting range should be set and how it should respond to changes in the nature of shocks to the economy.
JEL-codes: E52 E58 (search for similar items in EconPapers)
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Published as Frederic S. Mishkin & Niklas J. Westelius, 2008. "Inflation Band Targeting and Optimal Inflation Contracts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(4), pages 557-582, 06.
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Journal Article: Inflation Band Targeting and Optimal Inflation Contracts (2008)
Working Paper: Inflation Band Targeting and Optimal Inflation Contracts (2006)
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