Targeting inflation and the fiscal balance
Subtitle: what is the optimal policy mix?
By: Marcela Meirelles Aurelio
Contributors: Federal Reserve Bank of Kansas City. Research Division
Series: RWP -- 06-07
Publisher: Research Division, Federal Reserve Bank of Kansas City
Published: 2006
Place of publication: Kansas City [Mo.]
Language: eng
Format: [electronic resource] :
Description: This paper identifies optimal policy rules in the presence of explicit targets for both the inflation rate and public debt. This issue is investigated in the context of a dynamic stochastic general equilibrium model that describes a small open economy with capital accumulation, distortionary taxation and nominal price rigidities. The model is solved using a second-order approximation to the equilibrium conditions. Optimal policy features a strong anti-inflation stance and strict fiscal discipline. Targeting a domestic inflation index - as opposed to CPI - improves welfare because it reduces the inefficiencies that stem from both price stickiness and income taxes.
Notes: Title from PDF file (viewed on Sept. 27, 2006).

"June 2006."

Includes bibliographical references.

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