The paper proposes a new indicator of expected real effects of a policy aimed at controlling inflation. The indicator, called real effect of inflation targeting (REIT), involves the comparison of expected and output-neutral inflation. It is shown that it can be derived from a simple...

This paper shows: (1) bias may exist in Bayesian methods of selecting regressors; (2) the non-zero posterior inclusion probability of irrelevant regressors might affect the choice of regressors; and (3) how to compute the probability of falsely including a variable.

The paper proposes a new indicator of expected real effects of a policy aimed at controlling inflation.The indicator, called real effect of inflation targeting (REIT), involves the comparison of expected and output-neutral inflation.It is shown that it can be derived from a simple...