Inflation targeting

Harris Dellas () and Fabrice Collard

No 97, Computing in Economics and Finance 2004 from Society for Computational Economics

Abstract: We evaluate the case for perfect price (inflation) stabilization in a New Keynesian (NNS) model that includes capital accumulation, a variety of shocks, a monetary and an imperfect competition distortion. In such a model, price rigidity may provide the monetary authorities with an opportunity to improve upon the ine±cient flexible price equilibrium via the suitable cyclical manipulation of real marginal costs. We find that such an opportunity is of limited value. With only the imperfect competition friction present (in the †cashless†version of the model), inflation variability is costly independent of the level of capital adjustment costs, the degree of price rigidity, the size of markups, the degree of risk aversion and the type of the shock. A small amount of inflation variability may become desirable when prices are fairly flexible and capital adjustment costs low if the model includes both frictions

Keywords: monetary policy; welfare (search for similar items in EconPapers)
JEL-codes: E32 E52 (search for similar items in EconPapers)
Date: 2004-08-11
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:sce:scecf4:97

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