NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Inflation Targeting, Price-Path Targeting and Output Variability

Stephen G. Cecchetti, Junhan Kim

NBER Working Paper No. 9672
Issued in May 2003
NBER Program(s):   EFG   ME

The dramatic improvement in macroeconomic outcomes during the 1990s - stable, low inflation and high, stable growth - can be at least partly ascribed to improved monetary policy. Central banks became more independent and many of them adopted inflation targeting. This paper examines the potential for further improvements by refining the concept of inflation targeting. We construct a general model that encompasses a broad array of possible target regimes, and apply it to the data. Our results suggest that the vast majority of countries could benefit from moving to pricepath targeting, where the central bank makes up for periods of above (below) target inflation with later periods of below (above) target inflation.

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Document Object Identifier (DOI): 10.3386/w9672

Published: Inflation Targeting, Price-Path Targeting, and Output Variability, Stephen G. Cecchetti, Kim. in The Inflation-Targeting Debate, Bernanke and Woodford. 2005

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