@techreport{NBERw15505,
 title = "On Quality Bias and Inflation Targets",
 author = "Stephanie Schmitt-Grohe and Martin Uribe",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "15505",
 year = "2009",
 month = "November",
 URL = "http://www.nber.org/papers/w15505",
 abstract = {A policy  issue central banks are confronted with is whether inflation targets should be adjusted to account for the systematic upward  bias in measured inflation due to quality improvements in consumption goods.  We show that in the context of a Ramsey equilibrium  the answer to this question depends on what prices are assumed to be sticky. If nonquality-adjusted prices are assumed to be  sticky, then the Ramsey plan predicts that  the inflation target should not be corrected. If, on the other hand, quality-adjusted (or hedonic)  prices are assumed to be sticky, then the Ramsey plan calls for raising the inflation target by the magnitude of the bias.},
}