Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/152604
Authors: 
Mankiw, N. Gregory
Reis, Ricardo
Year of Publication: 
2002
Series/Report no.: 
ECB Working Paper 170
Abstract: 
This paper assumes that a central bank commits itself to maintaining an inflation target and then asks what measure of the inflation rate the central bank should use if it wants to maximize economic stability. The paper first formalizes this problem and examines its microeconomic foundations. It then shows how the weight of a sector in the stability price index depends on the sector's characteristics, including size, cyclical sensitivity, sluggishness of price adjustment, and magnitude of sectoral shocks. When a numerical illustration of the problem is calibrated to U.S. data, one tentative conclusion is that the central bank should use a price index that gives substantial weight to the level of nominal wages.
Subjects: 
inflation targeting
monetary policy
JEL: 
E42
E52
E58
Document Type: 
Working Paper

Files in This Item:
File
Size
537.43 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.