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Most modern central banks engage in inflation targeting instead of aiming at some nominal level of GDP, some exchange rate level, or the unemployment rate. Most central banks choose a rate of between 2-3% annual inflation and periodically adjust interest rates via open market operations and

Most modern central banks engage in inflation targeting instead of aiming at some nominal level of GDP, some exchange rate level, or the unemployment rate. Most central banks choose a rate of between 2-3% annual inflation and periodically adjust interest rates via open market operations and

Exploring Economics
Exploring Economics
8th Edition
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:Robert L. Sexton
Chapter27: Issues In Macroeconomic Theory And Policy
Section: Chapter Questions
Problem 6P
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Please help me with this discussion on Inflation Targeting Core or Headline?
Most modern central banks engage in inflation targeting instead of aiming at some nominal level of GDP, some exchange rate level, or the unemployment rate. Most central banks choose a rate of between 2-3% annual inflation and periodically adjust interest rates via open market operations and discount rate changes. A question, however, is whether they should focus on targeting core inflation, which excludes food and energy and a few other very volatile items, or use a headline inflation rate that includes all items in a defined consumer basket of goods. The majority of central banks focus on core inflation. 1. Can you name a few reasons why overreliance on core inflation can be misleading?
Transcribed Image Text:Most modern central banks engage in inflation targeting instead of aiming at some nominal level of GDP, some exchange rate level, or the unemployment rate. Most central banks choose a rate of between 2-3% annual inflation and periodically adjust interest rates via open market operations and discount rate changes. A question, however, is whether they should focus on targeting core inflation, which excludes food and energy and a few other very volatile items, or use a headline inflation rate that includes all items in a defined consumer basket of goods. The majority of central banks focus on core inflation. 1. Can you name a few reasons why overreliance on core inflation can be misleading?
Headline versus Core Inflation in the Conduct of Monetary Policy 08042 OF GOV DERAL WELLKAS BAR In discussing and thinking about the conduct of monetary policy, many central bankers focus on core inflation--that is, a measure of inflation that Board of Governors of the Federal Reserve System
Transcribed Image Text:Headline versus Core Inflation in the Conduct of Monetary Policy 08042 OF GOV DERAL WELLKAS BAR In discussing and thinking about the conduct of monetary policy, many central bankers focus on core inflation--that is, a measure of inflation that Board of Governors of the Federal Reserve System
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