This paper studies monetary policy rules in a small open economy with Inflation Targeting, incomplete pass-through and …

In closed or open economy models with complete markets, targeting core inflation enables monetary policy to maximize … is high. We develop an open economy model with incomplete financial markets to show that headline inflation targeting … headline inflation, assigns zero weight to import prices. …

In open economy, a choice can be made between two measures of inflation for use as a target variable: CPI inflation or … domestic inflation. This paper considers flexible and strict inflation targeting strategies and explores the circumstances … under which a domestic inflation target is preferred to a CPI inflation target. This is done from the perspectives of the …

. “Rents” in the CPI have jumped up by as much as 35% in certain quarters, hugely overestimating the true inflation. This … vitiates any use of the core CPI for monetary policy including inflation targeting. This will-o’-wisp that the RBI chased, had …

model indexation regulates the sources of inflation persistence. When indexation is zero, the inflation gap is purely … forward- looking and inflation persistence depends only on the level of trend inflation, while full indexation makes the … inflation gap persistent and it eliminates the effects of trend inflation. We show that in the former case the optimal policy is …