increases in domestic inflation. We show that one way to understand these episodes is as manifestations of balance of payments … accelerating fashion and, if the government targets CPI inflation, by fast increasing domestic inflation. …

shocks this model generates the empirically observed slow (inertial) and prolonged (persistent) reaction of the inflation … shocks mostly through a change in the long-run or inflation updating component of their pricing policies. With staggered … pricing policies there is a time lag before this is reflected in aggregate inflation. …

This paper analyzes a small open economy model under inflation targeting. It shows why such a monetary regime is … targeting, CPI inflation targeting, domestic nontradables inflation targeting, and money targeting. Under inflation targeting …

Is aggressive monetary policy response to inflation feasible in countries that suffer from fiscal dominance? We find … principle can produce unique equilibria. However, resulting inflation is extremely volatile and zero lower bound on nominal … interest rates is frequently violated. Within the set of feasible rules the optimal response to inflation is highly negative …