Inflation targets, credibility and persistence in a simple sticky-price framework

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Title: Inflation targets, credibility and persistence in a simple sticky-price framework
Authors: Rudd, Jeremy
Whelan, Karl
Permanent link: http://hdl.handle.net/10197/238
Date: Aug-2003
Abstract: An important trend in macroeconomic research in recent years involves the increased use of optimization-based models with nominal rigidities (such as sticky prices) to analyse how monetary policy affects the economy and how optimal policy should be designed. This paper presents a re-formulated version of a commonly-used baseline sticky-price model that has been extended to account for variations over time in the central bank's inflation target. We derive a closed-form solution for the model and analyse its properties under various parameter values. The model is used to explore topics relating to the effects of disinflationary monetary policies and inflation persistence. In particular, we employ the model to illustrate and assess the critique that standard sticky-price models generate counterfactual predictions for the effects of monetary policy.
Type of material: Technical Report
Publisher: Central Bank of Ireland
Copyright (published version): 2003 Copyright Central Bank of Ireland
Subject LCSH: Inflation (Finance)
Phillips curve
Monetary policy
Language: en
Status of Item: Not peer reviewed
Appears in Collections:Economics Research Collection

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