TY  - RPRT
        AU  - Anand, Rahul
AU  - Prasad, Eswar
AU  - Zhang, Boyang
        TI  - What Measure of Inflation Should a Developing Country Central Bank Target?
        PY  - 2015/Jul/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 9219
        UR  - https://www.iza.org/publications/dp9219
        AB  - In closed or open economy models with complete markets, targeting core inflation enables monetary policy to maximize welfare by replicating the flexible price equilibrium. We analyze this result in the context of developing economies, where a large proportion of households are credit constrained and the share of food expenditures in total consumption expenditures is high. We develop an open economy model with incomplete financial markets to show that headline inflation targeting improves welfare outcomes. We also compute the optimal price index, which includes a positive weight on food prices but, unlike headline inflation, assigns zero weight to import prices.
        KW  - headline inflation
KW  - core inflation
KW  - monetary policy framework
KW  - inflation targeting
KW  - financial frictions
        ER  -