Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/250334 
Year of Publication: 
2021
Series/Report no.: 
Cardiff Economics Working Papers No. E2021/10
Publisher: 
Cardiff University, Cardiff Business School, Cardiff
Abstract: 
In this paper, we examine the extent to which monetary policy should respond to movements in sectoral inflation rates. To do this we construct a Generalised Taylor model that takes specific account of the sectoral make-up of the consumer price index (CPI). We calibrate the model for each sector using the UK CPI microdata. We find that a policy rule that allows for different responses to inflation in different sectors outperforms a rule which just targets aggregate CPI, as does a rule that responds only to non food and energy inflation. However, we find that the optimal sectoral rule only leads to a small absolute improvement in terms of extra consumption.
Subjects: 
CPI inflation
Sectoral inflation rates
Generalised Taylor economy
JEL: 
E17
E31
E52
Document Type: 
Working Paper

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