What measure of inflation should a developing country central bank target?

A-Tier
Journal: Journal of Monetary Economics
Year: 2015
Volume: 74
Issue: C
Pages: 102-116

Score contribution per author:

1.341 = (α=2.01 / 3 authors) × 2.0x A-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

In closed or open economy models with complete markets, targeting core inflation enables monetary policy to maximize welfare by replicating the flexible price equilibrium. We analyze this result in the context of developing economies, where a large proportion of households are credit constrained and the share of food expenditures in total consumption expenditures is high. We develop an open economy model with incomplete financial markets to show that headline inflation targeting improves welfare outcomes. We also compute the optimal price index, which includes a positive weight on food prices but, unlike headline inflation, assigns zero weight to import prices.

Technical Details

RePEc Handle
repec:eee:moneco:v:74:y:2015:i:c:p:102-116
Journal Field
Macro
Author Count
3
Added to Database
2026-01-29