Shah Ahmad-Accepted Version.pdf (886.37 kB)
How important is the financial sector to price indices in an inflation targeting regime? An empirical analysis of the UK and the US
journal contribution
posted on 2016-05-13, 10:10 authored by Imran Hussain Shah, Ahmad Hassan AhmadAhmad Hassan AhmadThis paper investigates whether there are benefits in terms of higher economic stability from incorporating stock prices into the price index targeted by the central banks. It also looks into the question of whether central banks should use stock prices as a component of the output stability index and how the index can be constructed. An optimization technique is employed to estimate weights for the various sectoral prices. The obtained weights, which depend on sectoral parameters, differ from those used in the construction of the consumer price index, CPI. Using data from the UK and the US, our analysis demonstrates that in comparison to the CPI, our measure of inflation leads to higher output stability. Thus, in an inflation-targeting monetary policy environment, it is important to adopt a broader inflation benchmark than the CPI for the general macroeconomic stability.
History
School
- Business and Economics
Department
- Economics
Published in
Review of Quantitative Finance and AccountingVolume
48Issue
4Pages
1063 - 1082Citation
SHAH, I.H. and AHMED, A.H., 2017. How important is the financial sector to price indices in an inflation targeting regime? An empirical analysis of the UK and the US. Review of Quantitative Finance and Accounting, 48 (4), pp. 1063–1082.Publisher
© SpringerVersion
- AM (Accepted Manuscript)
Publisher statement
This work is made available according to the conditions of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) licence. Full details of this licence are available at: https://creativecommons.org/licenses/by-nc-nd/4.0/Acceptance date
2016-04-24Publication date
2016-05-05Notes
The final publication is available at Springer via http://dx.doi.org/10.1007/s11156-016-0578-9.ISSN
0924-865XeISSN
1573-7179Publisher version
Language
- en