Arbeitspapier

Inflation targeting and the role of money in a model with sticky prices and sticky money

In order to study the role of money in an inflation targeting regime for monetary policy, we compare the interest rate and money as monetary policy instruments.Our dynamic stochastic general equilibrium model combines the money-in-the-utility-function approach with sticky prices.We allow for time-varying preferences for real money balances, ie velocity shocks, and stochastic aggregate costs in production, ie 'technology shocks'.We show that conditioning the interest rate on the expected future cost change can be used to achieve constant inflation or constant inflation expectations.The assumed adjustment costs in 'money demand' lead to an equilibrium in which inflation can be controlled by money growth without information on the current state of the economy. Finally, we discuss the tradeoff between money and the interest rate as a monetary policy instrument.The result depends on the parameter stability of the cost change process relative to that of the 'money demand' function.

ISBN
951-686-560-7
Sprache
Englisch

Erschienen in
Series: Bank of Finland Discussion Papers ; No. 17/1997

Klassifikation
Wirtschaft
Price Level; Inflation; Deflation
Demand for Money
Monetary Policy
Thema
monetary transmission mechanism
money-in-the-utility-function model
sticky prices
technology shock
monetary policy strategy

Ereignis
Geistige Schöpfung
(wer)
Ripatti, Antti
Ereignis
Veröffentlichung
(wer)
Bank of Finland
(wo)
Helsinki
(wann)
1997

Handle
Letzte Aktualisierung
10.03.2025, 11:44 MEZ

Datenpartner

Dieses Objekt wird bereitgestellt von:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.

Objekttyp

  • Arbeitspapier

Beteiligte

  • Ripatti, Antti
  • Bank of Finland

Entstanden

  • 1997

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