Conservative Central Banks and Nominal Growth, Exchange Rate and Inflation Targets

20 Pages Posted: 17 Jul 2008

See all articles by Sang-Kun Bae

Sang-Kun Bae

Korea Economic Research Institute

Ronald A. Ratti

Western Sydney University - Department of Economics & Finance

Abstract

A framework is developed in which inflation biases with different target variables are compared. A nominal growth target measured in consumer prices may yield less stabilization bias than a nominal income growth target. Exchange rate and inflation targets result in less stabilization bias than an income growth target the more important the terms-of-trade stabilization. Persistence in output causes excessive stabilization of productivity shocks and of shocks to the terms of trade under discretion. An inflation-weight conservative central bank is more likely under an inflation target than under an exchange rate target, and less likely under a nominal income growth target.

Suggested Citation

Bae, Sang-Kun and Ratti, Ronald A., Conservative Central Banks and Nominal Growth, Exchange Rate and Inflation Targets. Economica, Vol. 75, Issue 299, pp. 549-568, August 2008, Available at SSRN: https://ssrn.com/abstract=1161928 or http://dx.doi.org/10.1111/j.1468-0335.2007.00628.x

Sang-Kun Bae (Contact Author)

Korea Economic Research Institute ( email )

FKI bldg. 28-1
Yoido Yongdungpo
Seoul, 150-756
Korea, Republic of (South Korea)
+82-2-3771-0023 (Phone)
+82-2-785-0273 (Fax)

HOME PAGE: http://blog.naver.com/econ_bae

Ronald A. Ratti

Western Sydney University - Department of Economics & Finance ( email )

Sydney, NSW 1797
Australia

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