Optimal Monetary Policy with Distinct Core and Headline Inflation Rates

Core inflation and monetary policy

What are the implications of targeting different measures of inflation? We extend a basic theoretical framework of optimal monetary policy under inflation targeting to include several components of CPI inflation, and analyze the implications of using different measures of inflation as target variable— core inflation, CPI excluding interest rates, and headline CPI inflation. Our main results are...

optimal monetary policy and inflation targeting

in this paper, by using dynamic stochastic general equilibrium, optimal monetary rule derived for central bank of iran. monetary transmission mechanism of the model includes four equations, aggregate demand, aggregate supply, oil price and taylor rule. we have proved that dynamic structure of aggregate demand relation, regarding monetary inflation in iran, is a function of money growth rate. wi...

Inflation Targeting and Optimal Monetary Policy

Inflation Risk and Optimal Monetary Policy

This paper shows that the optimal monetary policies recommended by New Keynesian models still imply a large amount of inflation risk. We calculate the term structure of inflation uncertainty in New Keynesian models when the monetary authority adopts the optimal policy. When the monetary policy rules are modified to include some weight on a price path, the economy achieves equilibria with substa...

Optimal Monetary Policy in an Economy with Inflation Persistence

This paper studies optimal monetary policy in a model where inflation is persistent. Two types of price setters are assumed to exist. One acts rationally given Calvo-type constraints on price setting. The other type sets prices according to a rule-of-thumb. This results in a Phillips curve with both a forward-looking term and a backward-looking term. The Phillips curve nests a standard purely f...