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| Tekijä: | Orphanides, A. Wieland, V. |
| Otsikko: | Inflation zone targeting |
| Lehti: | European Economic Review
2000 : JUN, VOL. 44:7, p. 1351-1387 |
| Asiasana: | Inflation Prices Monetary policy Optimization Models Europe USA |
| Kieli: | eng |
| Tiivistelmä: | This paper studies optimal monetary policy design in a simple model deviating from the linear-quadratic paradigm and provides a rationale for the practice of inflation zone targeting. It is shown that the presence of either zone-quadratic preferences or a zone-linear relationship btw. inflation and economic activity provides strong incentives to deviate from conventional linear policies. The model is calibrated based on parameters for the United States and the euro area and employed a numerical dynamic programming algorithm to derive the optimal policies. With this algorithm, the role of uncertainty, model structure and relative preference towards economic stability is examined in determining the width of the implied targeted inflation zone. |
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