Nominal Exchange Rate Anchoring Under Inflation Inertia

WPIEA0302002 Image
Price:  $15.00

Author/Editor: Guillermo Calvo, Michael Kumhof, Oya Celasun
Release Date: © February, 2002
ISBN : 978-1-45184-492-4
Stock #: WPIEA0302002
English
Stock Status: On back-order

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Description

This paper develops a theory of inflation inertia based on forward looking staggered price setting in the nontradable goods sector of a small open economy. Unlike current theories of sticky prices, transitions to a lower steady state inflation rate take time even if they are fully credible, and they are associated with significant output losses in nontradables There is a welfare trade-off between these output losses and the gains from smaller inflationary distortions. Gains exceed losses for most calibrations. The optimal steady state is the Friedman rule.

Taxonomy

Economic policy , Exchange rate policy , Fiscal policy , Foreign exchange , Inflation , Monetary policy , Pricing policy




More publications in this series: Working Papers


More publications by: Guillermo Calvo ; Michael Kumhof ; Oya Celasun