Keywords: Inflation targets, credibility, inflation persistence
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.
Full paper (290 KB PDF)
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Last update: September 3, 2003