Wage or price-based inflation? Alternative targets in optimal monetary policy rules

Marzo, Massimiliano

doi:10.1016/j.jedc.2008.10.009

Cited by 3 publications

(2 citation statements)

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“…We show in the context of our model that together with PIT, an additional WIT in the Taylor-type interest rate rule is welfare improving. This finding is in line with that of Marzo (2009) for the closed economy. Second, unlike the previous literature which usually augment the Taylor rule with additional exchange rate terms, we follow Benes et al (2015) in explicitly modelling sterilized FX intervention.…”

Section: Introductionsupporting

confidence: 92%

“…4 Sven Jari Stehn and Jan Hatzius, economists at Goldman Sachs, recommend a wage growth target for the Fed (Boesler, 2014). Marzo (2009) reviews the literature on wage inflation targeting. Canzoneri et al (2005) note that wage inflation targeting would have been an obvious alternative to price inflation targeting but it has "received almost no attention" in the literature.…”

Section: Introductionmentioning

confidence: 99%

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Does wage-inflation targeting complement foreign exchange intervention? An evaluation of a multi-target, two-instrument monetary policy framework

et al. 2017

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We assess the inclusion of wage inflation as an intermediate target of an emerging central bank using a dynamic stochastic general equilibrium model with sticky wages and prices calibrated for the South Korean economy. The model includes wage inflation as an additional target jointly with domestic price inflation and the output gap in a Taylor-type interest rate rule operating with a sterilized foreign exchange (FX) intervention rule. Our results show a complementary relationship between wage inflation targeting and price inflation targeting. That is, by supplementing price inflation targeting with wage inflation targeting, welfare improves for cases with and without sterilized FX intervention. When intervention is in place, wage inflation targeting has the added advantage of reducing the volatilities of nominal exchange rate and foreign exchange reserves thereby promoting a more sustainable conduct of FX intervention.

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Section: Introductionsupporting

confidence: 92%

Section: Introductionmentioning

confidence: 99%

Does wage-inflation targeting complement foreign exchange intervention? An evaluation of a multi-target, two-instrument monetary policy framework

et al. 2017

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Distortionary tax instruments and implementable monetary policy

Marattin

Marzo

Zagaglia

2013

International Review of Economics & Finance

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We introduce distortionary taxes on consumption, labor and capital income into a New Keynesian model with Calvo pricing and nominal bonds. We study the relation between tax instruments and optimal monetary policy by computing simple rules for monetary and fiscal policy when one tax instrument at a time varies, while the other two are fixed at their steady-state level. The optimal rules maximize the second-order approximation to intertemporal utility. Three results emerge: (a) when prices are sticky, perfect inflation stabilization is optimal independently from the tax instrument adopted; (b) the optimal degree of responsiveness of monetary policy to output varies depending on which tax instrument induces fluctuations in the average tax rate; (c) when prices are flexible, fiscal rules that prescribe unexpected variations in the price level to support debt changes are always welfare-maximizing.JEL classification: E52, E61, E63. Keywords: nominal rigidities, distortionary taxation, monetary-policy rules. * Marattin: Department of Economics, Università di Bologna; luigi.marattin@unibo.it. Marzo: Department of Economics, Università di Bologna; massimiliano.marzo@unibo.it. Zagaglia: Modelling Unit, Sveriges Riksbank; paolo.zagaglia@gmail.com. We are grateful to Jonas Agell, Tommaso Monacelli and Ulf Söderström for insightful discussions and suggestions, and to Fabrice Collard, Stephanie Schmitt-Grohé and Martin Uribe for detailed explanations on their related work. Robert Kollmann kindly commented on an earlier draft, thus shaping most of the improvements. Financial support from Stockholm University, MIUR, and BI Norwegian School of Management is gratefully acknowledged. The views expressed herein are those of the authors only and should not be attributed to the members of the Executive Board of Sveriges Riksbank.

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A New Keynesian model with staggered price and wage setting under learning

Best

2015

Journal of Economic Dynamics and Control

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Wage or price-based inflation? Alternative targets in optimal monetary policy rules

Cited by 3 publications

References 57 publications

Does wage-inflation targeting complement foreign exchange intervention? An evaluation of a multi-target, two-instrument monetary policy framework

Does wage-inflation targeting complement foreign exchange intervention? An evaluation of a multi-target, two-instrument monetary policy framework

Distortionary tax instruments and implementable monetary policy

A New Keynesian model with staggered price and wage setting under learning

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