Inflation Band Targeting and Optimal Inflation Contracts

53 Pages Posted: 3 Aug 2006

See all articles by Frederic S. Mishkin

Frederic S. Mishkin

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Niklas Johan Westelius

CUNY Hunter College - Department of Economics

Date Written: July 2006

Abstract

In this paper we examine how target ranges work in the context of a Barro-Gordon (1983) type model, in which the time-inconsistency problem stems from political pressures from the government. We show that target ranges turn out to be an excellent way to cope with the time-inconsistency problem, and achieve many of the benefits that arise under practically less attractive solutions such as the conservative central banker and optimal inflation contracts. Our theoretical model also shows how an inflation targeting range should be set and how it should respond to changes in the nature of shocks to the economy.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Suggested Citation

Mishkin, Frederic S. and Westelius, Niklas Johan, Inflation Band Targeting and Optimal Inflation Contracts (July 2006). NBER Working Paper No. w12384, Available at SSRN: https://ssrn.com/abstract=921550

Frederic S. Mishkin (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Niklas Johan Westelius

CUNY Hunter College - Department of Economics ( email )

695 Park Avenue
New York, NY 10021
United States
212-772-5433 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
34
Abstract Views
696
PlumX Metrics