TY  - JOUR
AU  - Schmitt-Grohe,Stephanie
AU  - Uribe,Martin
TI  - On Quality Bias and Inflation Targets
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15505
PY  - 2009
Y2  - November 2009
UR  - http://www.nber.org/papers/w15505
L1  - http://www.nber.org/papers/w15505.pdf
N1  - Author contact info:
Stephanie Schmitt-Grohe
Department of Economics
Columbia University
New York, NY 10027
Tel: 212/854-8059
Fax: 212/854-4010
E-Mail: stephanie.schmittgrohe@columbia.edu

Martin Uribe
Department of Economics
Columbia University
International Affairs Building
New York, NY 10027
Tel: 212 851 4008
Fax: 212 854 8059
E-Mail: martin.uribe@columbia.edu
AB  - 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.
ER  -