Targeting core inflation in emerging market economies

Stellenbosch Working Paper Series No. WP23/2014
Publication date: 2014
Author(s):
Abstract:

The pre-crisis monetary policy consensus has been challenged on a number of fronts. Even the nominal target, around which the modern consensus developed, has been called into question, with a vigorous recent debate ensuing about nominal income targeting as an alternative. This paper contributes to the controversy by arguing that one important reform of inflation-targeting regimes that deserves more attention is reformulating their targets explicitly in terms of core inflation. Core inflation targeting has a better theoretical grounding from both welfare economics and business cycle perspectives, holds practical advantages for inflation-targeting central banks, and has the promising feature of improving the frankness and accountability of monetary policy.

JEL Classification:

E31, E52, E58

Keywords:

Inflation, Core inflation, Inflation-targeting, Monetary policy

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