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Economic Stability and the Choice of the Target Inflation Index
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Alessandro Flamini
Published/Copyright:
April 12, 2012
This paper relates the Central Bank's choice of the target inflation index to expected economic stability in a small open economy that pursues inflation targeting. The analysis is set up in a New Keynesian model that allows for optimal monetary policy in presence of model uncertainty and exogenous shocks. The paper shows that for most of the macrovariables targeting the domestic price index instead of the CPI implies considerably more expected economic stability. When policy makers consider model uncertainty in the design of the optimal policy, the difference in the indexes' performance is sharpened allowing more informed decisions on their convenience.
Published Online: 2012-4-12
©2012 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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Articles in the same Issue
- Article
- Introduction to the Current Issue
- How Much Should a Nation Save? A New Answer
- Macroeconomic Stabilization Policies in Intrinsically Unstable Macroeconomies
- Expectations Dynamics: Policy, Announcements and Limits to Dynamic Inconsistency
- Routes to Complexity Induced by Constraints in Cournot Oligopoly Games with Linear Reaction Functions
- Technological Adoption with Imperfect Markets in the Italian Economy
- The Macrodynamics of External Overborrowing and Systemic Instability in a Small Open Economy
- The Convergence of Economic Developments
- Continuous-Tme Econometrics of Structural Models
- Economic Stability and the Choice of the Target Inflation Index
