Which Inflation Measure Should Policymakers Target?
Citation: IMF Working Papers 2012, 207; 10.5089/9781475505573.001.A001Notes: The top panel displays the variance of inflation (left) and the variance of the output gap (middle) for different long-run responses to inflation by the central bank when the central bank responds to either posted price inflation (π), effective price inflation (πE), or inflation of final goods prices (πc). The right panel shows expected utility loss in each case. The bottom panel plots equivalent figures in the case of price-level targeting when the central bank responds to either posted prices (P), effective prices (PE), or final consumption goods prices (Pc). See section 6.3 for details.