scholarly journals Inflation Dynamics in a Small Open-Economy Model under Inflation Targeting: Some Evidence from Chile

2008 ◽  
Author(s):  
Marco Del Negro ◽  
Frank Schorfheide
Keyword(s):  
Open Economy ◽  
Inflation Targeting ◽  
Small Open Economy ◽  
Inflation Dynamics ◽  
Economy Model

scholarly journals Evaluating an estimated new Keynesian small open economy model

2008 ◽  
Vol 32 (8) ◽  
pp. 2690-2721 ◽  
Author(s):  
Malin Adolfson ◽  
Stefan Laséen ◽  
Jesper Lindé ◽  
Mattias Villani
Keyword(s):  
Open Economy ◽  
Small Open Economy ◽  
New Keynesian ◽  
Economy Model

WHICH INFLATION TO TARGET? A SMALL OPEN ECONOMY WITH STICKY WAGES

2012 ◽  
Vol 18 (1) ◽  
pp. 145-174 ◽  
Author(s):  
Alessia Campolmi
Keyword(s):  
Open Economy ◽  
Inflation Targeting ◽  
Consumer Price Index ◽  
Small Open Economy ◽  
Target Variable ◽  
Price Inflation ◽  
Standard Result ◽  
Trade Elasticity ◽  
Sticky Wages ◽  
Domestic Inflation

There is common agreement on price inflation stabilization being one of the objectives of monetary policy. But, in an open economy, two alternative measures of inflation coexist: domestic inflation and consumer price inflation. Which of the two should be the target variable? Most of the new open economy macroeconomics (NOEM) literature suggests that the monetary authority should stabilize domestic inflation. This is in sharp contrast with the practice of many inflation-targeting central banks that are using consumer price index (CPI) inflation as target variable. The paper shows that the standard result in the NOEM literature is derived under the simplifying assumption of flexible wages. The inclusion of sticky wages in an otherwise standard small open economy model is shown to rationalize CPI inflation targeting. This conclusion is robust to changes in key parameters, including the trade elasticity.

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