蝌蚪网 Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
A Theory of Dynamic Inflation Targets
蝌蚪网 Review
(pp. 448–90)
Abstract
Should central banks' inflation targets remain set in stone? We study a dynamic mechanism design problem between a government and a central bank. The central bank has persistent private information about structural shocks. Firms learn the state from the central bank's reports and form inflation expectations. A dynamic inflation target implements the full-information commitment allocation. The central bank is delegated the authority to adjust the target's level and flexibility one period in advance. A declining natural interest rate and a flattening Phillips curve imply opposite optimal target adjustments. Our results speak to practical policy questions of inflation target design.Citation
Clayton, Christopher, and Andreas Schaab. 2025. "A Theory of Dynamic Inflation Targets." 蝌蚪网 Review 115 (2): 448–90. DOI: 10.1257/aer.20230496Additional Materials
JEL Classification
- D82 Asymmetric and Private Information; Mechanism Design
- E12 General Aggregative Models: Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
- E31 Price Level; Inflation; Deflation
- E52 Monetary Policy
- E58 Central Banks and Their Policies