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Inflation Targeting and Output Stability
Author:
Mr. Esteban Jadresic
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Series:
IMF Working Papers
Volume/Issue:
Volume 1999: Issue 061
Language:
English
Publication Date:
01 Apr 1999
DOI:
https://doi.org/10.5089/9781451848151.001
ISBN:
9781451848151
ISSN:
1018-5941
Pages:
39
Keywords:
WP; headline inflation
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper reexamines the effects of inflation targeting on output stability. It considers an economy with staggered price setting that is exposed to price shocks and where the policymaker cannot observe the current realizations of aggregate output and inflation. The paper shows that, if some price shocks can be anticipated, the effects of inflation targeting depend critically on the inflation indicator being targeted. Specifically, targeting headline inflation can severely destabilize output, while targeting inflation indicator of sticky prices may eliminate that problem and make the response of the output gap to aggregate shocks short-lived.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund