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What Measure of Inflation Should a Developing Country Central Bank Target? / Rahul Anand, Eswar Prasad, Boyang Zhang.
- Format:
- Book
- Author/Creator:
- Anand, Rahul.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w21388.
- NBER working paper series no. w21388
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2015.
- Summary:
- In closed or open economy models with complete markets, targeting core inflation enables monetary policy to maximize welfare by replicating the flexible price equilibrium. We analyze this result in the context of developing economies, where a large proportion of households are credit constrained and the share of food expenditures in total consumption expenditures is high. We develop an open economy model with incomplete financial markets to show that headline inflation targeting improves welfare outcomes. We also compute the optimal price index, which includes a positive weight on food prices but, unlike headline inflation, assigns zero weight to import prices.
- Notes:
- Print version record
- July 2015.
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