Benigno, Pierpaolo; Woodford, Michael - Department of Economics, School of Arts and Sciences - 2005
Flexible inflation targeting has been advocated as a practical approach to the implementation of an optimal state … intertemporal solvency (a case emphasized in the critique of inflation targeting by Sims, 2005). We find that the fiscal policy … regime has important consequences for the optimal conduct of monetary policy, but that a suitably modifed form of inflation …