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Finance and Economics Discussion Series
Finance and Economics Discussion Series logo links to FEDS home page Inflation Targets, Credibility, and Persistence in a Simple Sticky-Price Framework
Jeremy Rudd and Karl Whelan

Abstract: This paper presents a re-formulated version of a canonical 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 analyze 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.

Keywords: Inflation targets, credibility, inflation persistence

Full paper (290 KB PDF)

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Last update: September 3, 2003