On Quality Bias and Inflation Targets

Stephanie Schmitt-Grohe and Martín Uribe ()

No 15505, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: A policy issue central banks are confronted with is whether inflation targets should be adjusted to account for the systematic upward bias in measured inflation due to quality improvements in consumption goods. We show that in the context of a Ramsey equilibrium 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 Ramsey plan predicts that the inflation target should not be corrected. If, on the other hand, quality-adjusted (or hedonic) prices are assumed to be sticky, then the Ramsey plan calls for raising the inflation target by the magnitude of the bias.

JEL-codes: E52 E6 (search for similar items in EconPapers)
Date: 2009-11
New Economics Papers: this item is included in nep-cba and nep-mac
Note: ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published as On Quality Bias and Inflation Targets (with Martín Uribe), Journal of Monetary Economics, 59, May 2012, 393-400.

Downloads: (external link)
http://www.nber.org/papers/w15505.pdf (application/pdf)

Related works:
Journal Article: On quality bias and inflation targets (2012)
Working Paper: On Quality Bias and Inflation Targets (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:15505

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w15505

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().