In developing countries, weak institutional quality can increase the probability of applying discretionary policies and can have a great impact on their double-digit inflation. Surico (2008) calculated inflation bias, but he considered just monetary policy and he did not pay attention to the institutions. Therefore, we design a model which considers the discretion in monetary and fiscal policie...

This paper investigates core inflation defined as the best predictor of inflation. I compare forecasts obtained using the mean, weighted median, trimmed mean, and less food and energy inflation rates for the consumer price index and the personal consumption expenditure deflator for the current U.S. monetary policy regime. Another issue addressed is that of the systematic bias that exists due to...

I argue that the gap between consumer price index (CPI) inflation and actual inflation varies systematically across the business cycle. CPI inflation is the change in expenditure required to afford a fixed basket of varieties. Actual inflation is the change in minimum expenditure required to afford a given level of utility. In a New Keynesian model with variety entry and exit and sticky prices,...

! Average inflation below target in Sweden 1997-2011 ! Average inflation expectations (Prospera) close to target 1997-2011 Questions to be answered: ! If inflation expectations stuck at target when average inflation deviates from target, non-vertical long-run Phillips curve? ! If lower average inflation, higher average unemployment? ! If estimates of sustainable unemployment rate based on histo...

This paper studies whether the central bank should adjust its inflation target to account for the systematic upward bias in measured inflation due to quality improvements in consumption goods. We show that the answer to this question depends on what prices are assumed to be sticky. If nonquality-adjusted prices are assumed to be sticky, then the inflation target should not be corrected. If, on ...

Since Kydland and Prescott (1977) and Barro and Gordon (1983), a quadratic one-period loss function has been used widely in most of existing literature to analyze inflation bias induced by discretion. In this paper, instead of following the conventional linear-quadratic approach, we use a projection method to investigate the size of inflation bias in a mirco-founded non-linear model where firms...

this research follows two aims in case of the iranian economy. first, study of the presence of inflation persistency, and second, looking for an optimal monetary policy rule. results show that inflation in the economy of iran is persistent, in which, short-term and long-term effects of monetary policy should be considered. for this purpose, a loss function for the central bank with arguments of...