Working Paper
Inflation to target : what inflation to target?
Abstract: This paper derives a central bank's objective function and optimal policy rule for an economy with both CPI and PPI inflation rates. It implements constrained-optimal policy rules with minimal information requirement, and evaluates the robustness of these simple rules when the central bank may not know the exact sources of shocks or nominal rigidities. One of the main findings is that monetary policy that ignores PPI inflation rate or PPI sector shocks can result in significant welfare loss.
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File(s): File format is application/pdf https://www.kansascityfed.org/documents/5387/pdf-RWP03-10.pdf
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Bibliographic Information
Provider: Federal Reserve Bank of Kansas City
Part of Series: Research Working Paper
Publication Date: 2004-02-01
Number: RWP 03-10
Pages: 37 pages