Conference Objects

Discussion 2

Woodford, Michael

From page 393 -- 'As we shall see, the nature of inflation dynamics matters for several aspects of the optimal conduct of monetary policy. First, alternative pricing models can lead to different views of the optimal long-run inflation target. Second, they can imply different perspectives of the optimal dynamic responses of inflation to disturbances, and hence to different views of the degree to which temporary departures from the long-run target should be allowed. And finally, alternative models can change the form of the targeting rule to which a central bank should commit itself to bring about those optimal responses to disturbances, while guaranteeing the desired long-run average rate of inflation. These aspects demonstrate that the way prices are set should affect the nature of a central bank’s policy objectives and commitments, and not simply the actions that it must take to fulfill those commitments.'



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Price Adjustment and Monetary Policy - 2002 Conference
Bank of Canada

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November 26, 2013