Inflation Inertia and the Optimal Hybrid Inflation/Price-Level Target

A hybrid inflation/price-level target combines elements of both inflation and price-level targets. The paper derives a hybrid target within a new Keynesian model with inflation persistence due to price indexation. The result generalizes a result by Vestin (2005) that the optimal policy could be implemented with a price-level targeting regime. We show that the optimal price-level drift in the hybrid target is equal to the degree of price indexation.

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Year of publication:	2005
Authors:	Røisland, Øistein
Publisher:	Oslo : Norges Bank
Subject:	price-level target \| inflation persistence \| commitment

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Series:	Working Paper ; 2005/4
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Working Paper
Language:	English
ISBN:	82-7553-301-5
Other identifiers:	hdl:10419/209851 [Handle] hdl:11250/2498437 [Handle] RePEc:bno:worpap:2005_04 [RePEc]
Classification:	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:	EconStor

Persistent link: https://www.econbiz.de/10012143640