Optimal Monetary Policy Under Inflation Targeting: Is Zero the Optimal Perception of Inflation Inertia?

Recent research has suggested that in deriving optimal policy under discretion, policymakers should react as if there were no structural inflation persistence in order to improve welfare. This paper considers whether such a strong result extends to an inflation targeting central bank with a more general Phillips curve formulation. The findings indicate that if anything, a central banker that assumes a high degree of inflation inertia is often preferable.

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Year of publication:	2007-06
Authors:	Paez-Farrell, Juan
Institutions:	Economics Section, Cardiff Business School
Subject:	optimal monetary policy \| discretion \| uncertainty \| inflation persistence

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Extent:	application/pdf
Series:	Cardiff Economics Working Papers. - ISSN 1749-6101.
Type of publication:	Book / Working Paper
Language:	English
Notes:	Number E2007/17 13 pages
Classification:	E31 - Price Level; Inflation; Deflation ; E52 - Monetary Policy (Targets, Instruments, and Effects) ; E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination ; E63 - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005212006