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When Does an Inflation Target Yield the Second Best?
Author(s) -
Beetsma Roel,
Bovenberg Lans
Publication year - 2001
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/1467-9442.00233
Subject(s) - seigniorage , inflation (cosmology) , economics , yield (engineering) , central bank , revenue , monetary economics , inflation targeting , government (linguistics) , monetary policy , keynesian economics , macroeconomics , finance , linguistics , philosophy , physics , materials science , theoretical physics , metallurgy
It is shown that an inflation target does not establish the second best if the central bank is independent and the government collects seigniorage revenues. To eliminate excessive inflation and ensure that stabilization is efficient, society should combine an optimal inflation target with a central bank that attaches less weight to inflation stabilization than the public does.