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Inflation Targeting and Output Stability

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  • Mr. Esteban Jadresic

Abstract

This paper reexamines the effects of inflation targeting on output stability. It considers an economy with staggered price setting that is exposed to price shocks and where the policymaker cannot observe the current realizations of aggregate output and inflation. The paper shows that, if some price shocks can be anticipated, the effects of inflation targeting depend critically on the inflation indicator being targeted. Specifically, targeting headline inflation can severely destabilize output, while targeting inflation indicator of sticky prices may eliminate that problem and make the response of the output gap to aggregate shocks short-lived.

Suggested Citation

  • Mr. Esteban Jadresic, 1999. "Inflation Targeting and Output Stability," IMF Working Papers 1999/061, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1999/061
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    Cited by:

    1. Sergio Clavijo, 2000. "Reflexiones Sobre Política Monetaria E "Inflación Objetivo" En Colombia," Borradores de Economia 3423, Banco de la Republica.
    2. Andrés Elberg & Vittorio Corbo & José Tessada, 1999. "Monetary Policy in Latin America: Underpinnings and Procedures," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 36(109), pages 897-927.
    3. Mr. Eric Parrado, 2004. "Inflation Targeting and Exchange Rate Rules in an Open Economy," IMF Working Papers 2004/021, International Monetary Fund.
    4. Sergio Clavijo, 2000. "Reflexiones Sobre Política Monetaria e "Inflación Objetivo" en Colombia," Borradores de Economia 141, Banco de la Republica de Colombia.

    More about this item

    Keywords

    WP; headline inflation;

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