Citation

Discussion Paper Details

Please find the details for DP10827 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: The choice of flexibility in targeting inflation during normal times and during disinflation

Author(s): Alex Cukierman

Publication Date: September 2015

Keyword(s): anchoring expectations, reputation and return to price stability

Programme Area(s): Monetary Economics and Fluctuations

Abstract: This paper investigates the relationship between the return path to price stability and the extent of flexibility in targeting inflation under perfect reputation as well as under imperfectly anchored inflation targeting systems characterized by imperfect reputation. The first part of the paper shows that the mapping from the flexibility parameter, to the return path to price stability is generally non-unique. It discusses reasons and consequences of this non-uniqueness, and proposes several ways to address the communication and related problems that this fact creates for the conduct of monetary policy. The second part investigates the impact of reputation (defined as the weight given by the public to preannounced interim targets in forming inflationary expectations) on the speed of inflation stabilization. The main result is that higher reputation is associated with faster stabilizations at all levels of the flexibility parameter.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10827

Bibliographic Reference

Cukierman, A. 2015. 'The choice of flexibility in targeting inflation during normal times and during disinflation'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10827