MODELLING INFLATION DYNAMICS. A PRACTICAL APPROACH
MODELLING INFLATION DYNAMICS. A PRACTICAL APPROACH

Summary/Abstract: Over the past decades, the ultimate goal of central bank monetary policy has systematically moved towards monetary stability and low-inflation credibility. To obtain this goal, various strategies have been implemented, such as the use of explicit intermediate targets or target ranges for some monetary aggregate, or the commitment to maintain a fixed exchange rate with a low-inflation country. Therefore, in this study we present a dynamical model for monetary policy. The model emphasis the principal interdependence that is stabilized between the system variables (real stock of money, rate of inflation) and the variation of these in function of the parameters values. In this paper we address the issue whether a switch to inflation targeting can help build monetary policy credibility and can substitute for a track record of low inflation.

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