On Quality Bias and Inflation Targets /
Schmitt-Grohe, Stephanie.
On Quality Bias and Inflation Targets / Stephanie Schmitt-Grohe, Martin Uribe. - Cambridge, Mass. National Bureau of Economic Research 2009. - 1 online resource: illustrations (black and white); - NBER working paper series no. w15505 . - Working Paper Series (National Bureau of Economic Research) no. w15505. .
November 2009.
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.
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Mode of access: World Wide Web.
On Quality Bias and Inflation Targets / Stephanie Schmitt-Grohe, Martin Uribe. - Cambridge, Mass. National Bureau of Economic Research 2009. - 1 online resource: illustrations (black and white); - NBER working paper series no. w15505 . - Working Paper Series (National Bureau of Economic Research) no. w15505. .
November 2009.
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.
System requirements: Adobe [Acrobat] Reader required for PDF files.
Mode of access: World Wide Web.