What Measure of Inflation Should a Central Bank Target?

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What Measure of Inflation Should a Central Bank Target?

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Title: What Measure of Inflation Should a Central Bank Target?
Author: Mankiw, N. Gregory; Reis, Ricardo

Note: Order does not necessarily reflect citation order of authors.

Citation: Mankiw, N. Gregory, and Ricardo Reis. 2003. What measure of inflation should a central bank target? Journal of the European Economic Association 1(5): 1058-1086.
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Abstract: This paper assumes that a central bank commits itself to maintaining an inflation target and then asks what measure of the inflation rate the central bank should use if it wants to maximize economic stability. The paper first formalizes this problem and examines its microeconomic foundations. It then shows how the weight of a sector in the stability price index depends on the sector's characteristics, including size, cyclical sensitivity, sluggishness of price adjustment, and magnitude of sectoral shocks. When a numerical illustration of the problem is calibrated to U.S. data, one tentative conclusion is that a central bank that wants to achieve maximum stability of economic activity should use a price index that gives substantial weight to the level of nominal wages.
Published Version: http://dx.doi.org/10.1162/154247603770383398
Terms of Use: This article is made available under the terms and conditions applicable to Other Posted Material, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#LAA
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:3415322

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  • FAS Scholarly Articles [6463]
    Peer reviewed scholarly articles from the Faculty of Arts and Sciences of Harvard University

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