Product Replacement Bias in Inflation and its Consequences for Monetary Policy

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dc.contributor.author WEBER, Henning
dc.date.accessioned 2012-04-19T11:39:32Z
dc.date.available 2012-04-19T11:39:32Z
dc.date.issued 2012
dc.identifier.citation Journal of Money, Credit and Banking, 2012, 44, 2-3, 255–299 en
dc.identifier.issn 1538-4616
dc.identifier.issn 0022-2879
dc.identifier.uri http://hdl.handle.net/1814/21662
dc.description Article first published online: 27 MAR 2012 en
dc.description The article is a revised version of EUI Working Paper, RSCAS 2009/44
dc.description.abstract The paper examines a New Keynesian model with product entry and exit and with two types of households. Households consume different product baskets, and therefore, face different inflation rates. The statistical bureau used in the model measures aggregate inflation, but observes product entry with a probabilistic delay. Consequently, measured inflation suffers from product replacement bias with respect to aggregate inflation. Measured inflation is less volatile but more persistent than aggregate inflation, and the correlation between aggregate inflation and aggregate output is lower than the correlation between measured inflation and measured output. When monetary policy responds to measured variables, it stabilizes aggregate inflation insufficiently. Nevertheless, under discretionary monetary policy, responding to measured variables improves welfare. en
dc.language.iso en en
dc.relation.isbasedon http://hdl.handle.net/1814/12387
dc.title Product Replacement Bias in Inflation and its Consequences for Monetary Policy en
dc.type Article en
dc.identifier.doi 10.1111/j.1538-4616.2011.00487.x


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