Inflation Band Targeting and Optimal Inflation Contracts / Frederic S. Mishkin, Niklas J. Westelius.

Format:

Book

Author/Creator:

Mishkin, Frederic S.

Contributor:

National Bureau of Economic Research.

Westelius, Niklas J.

Series:

Working Paper Series (National Bureau of Economic Research) no. w12384.

NBER working paper series no. w12384

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2006.

Summary:

In this paper we examine how target ranges work in the context of a Barro-Gordon (1983) type model, in which the time-inconsistency problem stems from political pressures from the government. We show that target ranges turn out to be an excellent way to cope with the time-inconsistency problem, and achieve many of the benefits that arise under practically less attractive solutions such as the conservative central banker and optimal inflation contracts. Our theoretical model also shows how an inflation targeting range should be set and how it should respond to changes in the nature of shocks to the economy.

Notes:

Print version record

July 2006.