In models with complete markets, targeting core inflation enables monetary policy to maximize welfare by replicating … stabilize price movements in the flexible price sector. Also, in the presence of financial frictions, stabilizing core inflation … frictions a welfare-maximizing central bank should adopt flexible headline inflation targeting--a target based on headline …

banks set interest rate targets, and do not even pretend to control money supplies. How is inflation determined under an …We finally have a complete theory of inflation under interest rate targets, that mirrors the long-run neutrality and … frictionless limit of monetary theory: Inflation can be stable and determinate under interest rate targets, including a k percent …

-low unemployment. These interest rates were accommodative by historical standards. Nonetheless, inflation remained low. How did the Fed … succeed in sustaining rapid economic growth without fueling inflation and inflationary expectations? In retrospect, it is …This paper provides an explanation for the success of the Fed in accommodating growth with stable inflation in the late …

solutions such as the conservative central banker and optimal inflation contracts. Our theoretical model also shows how an … inflation targeting range should be set and how it should respond to changes in the nature of shocks to the economy …

A new measure of credibility is constructed as a function of the differential between observed inflation and some … estimate of the inflation rate that the central bank targets. The target is assumed to be met flexibly. Credibility is …-2008 financial crisis. The VIX, adopting an inflation target and central bank transparency, are the most reliable determinants of …

improved monetary performance: 1) there is no long-run tradeoff between output (employment) and inflation; 2) expectations are … critical to monetary policy outcomes; 3) inflation has high costs; 4) monetary policy is subject to the time …