Loading...
Please wait, while we are loading the content...
Similar Documents
Inflation Targeting under Heterogeneous Information and Sticky Prices
| Content Provider | Semantic Scholar |
|---|---|
| Author | Prices, Sticky |
| Copyright Year | 2012 |
| Abstract | Under what conditions should a central bank adopt an inflation targeting regime? This is the main question we address in this paper. A large part of the literature puts forward that these regimes should have to be adopted, as they yield higher macroeconomic performances. We analyze the issue of optimal inflation targeting in a new theoretical framework, which conciliates the interaction between the degree of price stickiness, and the degree of strategic complementarities in firms’ price setting. We show that adopting a target for inflation, crucially depends on the sequential but complementary importance of the model’s parameters. In particular, we show that strategic complementarities appear to be the first driving force. When they are low, the central bank must adopt an inflation targeting regime whatever the importance of other parameters in the model. By contrast, when the degree of strategic complementarities is high, adopting a target for inflation depends on both the degree of price stickiness and the precision of central bank’s information about ∗This paper has been written when I was visiting the School of Public Policy (SPP) of George Mason University (Washington, USA). I am particularly grateful to professors Andrew Hughes Hallett, Camille Cornand, and Jean Pierre Allegret for their useful comments, as well as all participants at SPP and GATE-LSE seminars. All remaining errors are my own. †Université de Lyon, Lyon, F-69007, France; Université Lyon 2, Lyon, F-69007, France; Ecole Normale Supérieure de Lyon, Lyon, F-69007, France; CNRS, GATE Lyon St Etienne, Ecully, F-69130, France. Email: mbaye@gate.cnrs.fr. 1 ha ls hs -0 06 77 67 1, v er si on 1 9 M ar 2 01 2 the fundamentals of the economy. When prices are flexible enough, adopting an inflation target is never optimal. However, when prices are strongly sticky, and the central bank holds precise information about the fundamentals, the central bank should adopt an explicit target for inflation. JEL Classification : E52; E58; E61; E31. |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | http://hal-ens-lyon.archives-ouvertes.fr/docs/00/67/76/71/PDF/1202.pdf |
| Alternate Webpage(s) | http://halshs.archives-ouvertes.fr/docs/00/67/76/71/PDF/1202.pdf |
| Language | English |
| Access Restriction | Open |
| Subject Keyword | Complementarity theory Email Entity Name Part Qualifier - adopted GATE JEAN MASON Performance Self-propelled particles Sticky bit United States Public Health Service cellular targeting |
| Content Type | Text |
| Resource Type | Article |
