Optimal monetary policy with distinct core and headline inflation rates
By: Martin Bodenstein, Christopher J. Erceg, and Luca Guerrieri.
Contributors: Erceg, Christopher J.; Guerrier, Luca.
Series: International finance discussion papers -- no. 941; International finance discussion papers (Online) -- no. 941.
Publisher: Federal Reserve Board
Published: 2008
Place of publication: Washington, D.C
Language: eng
Format: Electronic resource
Description: "In a stylized DSGE model with an energy sector, the optimal policy response to an adverse energy supply shock implies a rise in core inflation, a larger rise in headline inflation, and a decline in wage inflation.  The optimal policy is well-approximated by policies that stabilize the output gap, but also by a wide array of "dual mandate" policies that are not overly aggressive in stabilizing core inflation.  Finally, policies that react to a forecast of headline inflation following a temporary energy shock imply markedly different effects than policies that react to a forecast of core, with the former inducing greater volatility in core inflation and the output gap"--Federal Reserve Board web site.
Notes: Title from PDF file as viewed on 6/18/2009.

Includes bibliographical references.

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