other reaction coefficients, on inflation and output, are sub-optimal. However, an indirect exchange rate response, through … a policy reaction to Consumer Price Index (CPI) inflation rather than to domestic inflation, is welfare enhancing. This … result is independent of whether society values domestic or CPI inflation stabilization. …

The central bank's optimal reaction to foreign and domestic shocks is analyzed in an inflation targeting model allowing … that the interest rate response to foreign shocks is smaller when pass-through is low. Second, the inflation …

unemployment, the optimal policy is to minimize variance of domestic price inflation, wage inflation, and the output gap when both … Taylor-rule type interest rate rule will be welfare-enhancing. Lastly, controlling CPI inflation is the best option when the … of CPI inflation-based Taylor rule is diminished. …