Economics, Econometrics and Finance
4 years ago

Adjusting inflation target boosts welfare and stabilizes economy during cost-push shocks.

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SSRN Electronic Journal
The Role of Inflation Target Adjustment in Stabilization Policy
Yunjong Eo, Denny Lie

Paper Summary

Adjusting the inflation target can help stabilize the economy and improve welfare. By using a specific rule that changes the target in response to cost-push shocks, inflation fluctuations can be reduced. This rule, when combined with another policy, leads to similar welfare levels as the optimal policy.

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