Inflation targeting: the conventional analysis and an alternative model
Brazilian Journal of Political Economy, Vol. 28 No. 2 (2008), Apr-Jun / 2008, Pages 187-206
the conventional analysis and an alternative model
This article has two aims: the first one is to present a formal model of the monetary policy identified generally as “inflation targeting policy”, an instrument of intervention of the central bank, through the short run nominal interest rate. The second aim is to discuss and criticize the theoretical assumptions of the model specially the concepts of “natural rate of interest” and of potential product presented by the “augmented Philips curve”; and to present a more realistic model of inflation targeting which does not assume the hypotheses above, and in which inflation targeting is based on the control of real rate of interest.
JEL Classification: E00; E4; E52; E58.
Keywords: Short-run interest rate inflationary targeting, potential output nominal monetary rules natural interest rate