TY  - JOUR
AU  - Mishkin,Frederic S.
AU  - Westelius,Niklas J.
TI  - Inflation Band Targeting and Optimal Inflation Contracts
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12384
PY  - 2006
Y2  - July 2006
UR  - http://www.nber.org/papers/w12384
L1  - http://www.nber.org/papers/w12384.pdf
N1  - Author contact info:
Frederic S. Mishkin
Columbia University
Graduate School of Business
Uris Hall 817
3022 Broadway
New York, NY 10027
Tel: 212-854-3488
Fax: 212/662-8474
E-Mail: fsm3@columbia.edu

Niklas Westelius
Niklas Westelius
170 E87th Street Apt E10B
NY, NY 10128
Tel: 212 933 4350
E-Mail: niklas.westelius@hunter.cuny.edu
M2  - featured in NBER digest on 2006-07-31
AB  - In this paper we examine how target ranges work in the context of a Barro-Gordon (1983) type model, in which the time-inconsistency problem stems from political pressures from the government. We show that target ranges turn out to be an excellent way to cope with the time-inconsistency problem, and achieve many of the benefits that arise under practically less attractive solutions such as the conservative central banker and optimal inflation contracts. Our theoretical model also shows how an inflation targeting range should be set and how it should respond to changes in the nature of shocks to the economy.
ER  -