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Hybrid Inflation‐Price‐Level Targeting in an Economy With Output Persistence
Author(s) -
Kobayashi Teruyoshi
Publication year - 2004
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/j.0036-9292.2004.00325.x
Subject(s) - economics , inflation (cosmology) , phillips curve , persistence (discontinuity) , inflation targeting , price setting , relative price , output gap , econometrics , price level , monetary economics , inflation rate , monetary policy , macroeconomics , microeconomics , physics , geotechnical engineering , theoretical physics , engineering
This paper investigates hybrid inflation‐price‐level targeting (HT), employing a Phillips curve with output persistence. By HT we mean that a central bank targets a weighted average of the optimal inflation rate and its corresponding price level. The analysis shows that if output is persistent to some extent, it is desirable to adopt HT because, relative to the case of alternative regimes such as inflation targeting (IT) and price‐level targeting (PT), it will reduce the variability of inflation and thereby social loss. In addition, it is shown that the optimal hybrid‐type target is uniquely determined according to the degree of persistence in output.