28apr201717:00Monetary Policy along Structural ChangeCesar Blanco17:00

Event Details

Seminar Room 1, Espais de Recerca (ERE)

Duration: 20 minutes

Abstract: A key issue for central banks is to define a measure of inflation to target. This measure should allow the monetary authority to minimize welfare losses that arise due to frictions in the economy. These institutions may choose to target headline or core inflation. In this paper, we study how the optimal measure of inflation is affected by the sectoral composition of the economy. For this purpose, we build a multi-sector model that includes features from the structural change and new keynesian literature. We calibrate the model to match the structural change features of a developing country, that is, large employment and consumption in agriculture as a percentage of total employment and expenditure, respectively. We evaluate welfare losses using a simple and implementable Taylor rule. We find that the optimal weight depends on the type of shock hitting the economy. Shocks to the flexible agricultural sector imply a zero weight on agricultural inflation. On the other hand, shocks to the sticky non-agricultural sector imply a full weight on agricultural inflation.

Speaker

Cesar Blanco

Time

(Friday) 17:00

Location

Faculty of Economics and Business, University of Barcelona

Avda. Diagonal 690, Barcelona