Optimal Price Indices for Targeting Inflation Under Incomplete Markets

Optimal Price Indices for Targeting Inflation Under Incomplete Markets
In models with complete markets, targeting core inflation enables monetary policy to maximize welfare by replicating the flexible price equilibrium. We develop a two-sector two-good new-Keynesian model to study the optimal choice of price index in markets with financial frictions. We find that, in the presence of financial frictions, a... READ MORE...

Publication date: September 2010
ISBN 9781455205301
$18.00

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