A Model for Full-Fledged Inflation Targeting and Application to Ghana

Author/Editor:

Kevin Clinton ; Jihad Dagher ; Ondrej Kamenik ; Douglas Laxton ; Ali Alichi ; Marshall Mills

Publication Date:

January 1, 2010

Electronic Access:

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Summary:

A model in which monetary policy pursues full-fledged inflation targeting adapts well to Ghana. Model features include: endogenous policy credibility; non-linearities in the inflation process; and a policy loss function that aims to minimize the variability of output and the interest rate, as well as deviations of inflation from the long-term low-inflation target. The optimal approach from initial high inflation to the ultimate target is gradual; and transitional inflation-reduction objectives are flexible. Over time, as policy earns credibility, expectations of inflation converge towards the long-run target, the output-inflation variability tradeoff improves, and optimal policy responses to shocks moderate.

Series:

Working Paper No. 10/25

Subject:

English

Publication Date:

January 1, 2010

ISBN/ISSN:

9781451962444/1018-5941

Stock No:

WPIEA2010025

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

30

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