Inflation Targeting and Output Stability

April 1, 1999

Preview Citation

Format: Chicago

Esteban Jadresic. Inflation Targeting and Output Stability, (USA: International Monetary Fund, 1999) accessed November 24, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper reexamines the effects of inflation targeting on output stability. It considers an economy with staggered price setting that is exposed to price shocks and where the policymaker cannot observe the current realizations of aggregate output and inflation. The paper shows that, if some price shocks can be anticipated, the effects of inflation targeting depend critically on the inflation indicator being targeted. Specifically, targeting headline inflation can severely destabilize output, while targeting inflation indicator of sticky prices may eliminate that problem and make the response of the output gap to aggregate shocks short-lived.

Subject: Inflation, Inflation targeting, Monetary base, Output gap, Sticky prices

Keywords: Headline inflation, WP

Publication Details

Pages:

39
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1999/061
Stock No:

WPIEA0611999
ISBN:

9781451848151
ISSN:

1018-5941

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