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Inflation inertia and the optimal hybrid inflation/price-level target

Author

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  • Øistein Røisland

    (Norges Bank)

Abstract

A hybrid inflation/price-level target combines elements of both inflation and price-level targets. The paper derives a hybrid target within a new Keynesian model with inflation persistence due to price indexation. The result generalizes a result by Vestin (2005) that the optimal policy could be implemented with a price-level targeting regime. We show that the optimal price-level drift in the hybrid target is equal to the degree of price indexation.

Suggested Citation

  • Øistein Røisland, 2005. "Inflation inertia and the optimal hybrid inflation/price-level target," Working Paper 2005/4, Norges Bank.
    • Handle: RePEc:bno:worpap:2005_04
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    More about this item

    Keywords

    Price-level target; Inflation persistence; Commitment;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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