What Measure of Inflation Should a Developing Country Central Bank Target?

What Measure of Inflation Should a Developing Country Central Bank Target?
Author :
Publisher : International Monetary Fund
Total Pages : 37
Release :
ISBN-10 : 9781513597461
ISBN-13 : 1513597469
Rating : 4/5 (61 Downloads)

Book Synopsis What Measure of Inflation Should a Developing Country Central Bank Target? by : Rahul Anand

Download or read book What Measure of Inflation Should a Developing Country Central Bank Target? written by Rahul Anand and published by International Monetary Fund. This book was released on 2015-09-28 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.


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