Keynesian model we show that, if households have hyperbolic discounting, small positive rates of inflation can be optimal. In … our baseline calibration, the optimal rate of inflation is 2.1% and remains positive across a wide range of calibrations. …

announcing a quantified inflation objective, other forms of communication, or by publishing central banks’ inflation and output … (economic) transparency, and given our findings that disagreement among inflation expectations in the general public is not …

institutions. Such an arrangement is inferior to an optimal inflation targeting, or a Rogoff-style central banker, whose optimal …

macroeconomic behaviour. Inflation targeting is compared to the welfare maximizing monetary rule and to a fixed nominal exchange … rate. It is found that flexible inflation targeting produces too little exchange rate volatility compared to the optimal … rule but delivers higher welfare than a fixed nominal exchange rate. Strict inflation targeting also delivers higher …

United States during the 1990s. Proponents of this approach recommend that, when inflation is moderate but still above the … long-run objective, the central bank should not move immediately to fight inflation, but rather wait for exogenous … circumstances — such as favourable supply shocks and unforeseen recessions — to deliver the desired reduction in inflation. While …

Korea has adopted much of the apparatus of inflation targeting, with a band for target inflation and a Monetary Policy … trade and investment as Korea, currency movements contain information useful for forecasting inflation and the output gap … information relevant for the inflation forecast. In addition, the central bank responds to movements in the exchange rate for …

Inflation-targeting central banks have only imperfect knowledge about the effect of policy decisions on inflation. An … important source of uncertainty is the relationship between inflation and unemployment. This Paper studies the optimal monetary … policy in the presence of uncertainty about the natural unemployment rate, the short-run inflation-unemployment trade-off and …

Most central banks perceive a trade-off between stabilizing inflation and stabilizing the gap between output and … inflation is equivalent to stabilizing the welfare-relevant output gap. In this paper, we argue that this property of the new … trade-off between stabilizing inflation and stabilizing the welfare-relevant output gap. We show that not only does the …

One test of an exchange-rate peg is to ask whether the implicit inflation target of the pegging country is the same as … that of the anchor country. If the inflation targets of the two countries are different, the peg's long-run credibility …