CONDI: A Cost-of-Nominal-Distortions Index

Stefano Eusepi, Bart Hobijn and Andrea Tambalotti

American Economic Journal: Macroeconomics, 2011, vol. 3, issue 3, 53-91

Abstract: We construct a PCE-based price index whose weights minimize the welfare costs of nominal distortions: a cost-of-nominal-distortions index. We compute these weights in a multi-sector New Keynesian model, calibrated to match US data on price stickiness, labor shares, and inflation across sectors. The CONDI weights mostly depend on price stickiness. Moreover, CONDI stabilization leads to negligible welfare losses compared to the optimal policy and is better approximated by core rather than headline inflation targeting. An even better approximation can be obtained with an adjusted core index. (JEL C14, E12, E25, E31, E52).

JEL-codes: C14 E12 E25 E31 E52 (search for similar items in EconPapers)
Date: 2011
Note: DOI: 10.1257/mac.3.3.53
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Citations: View citations in EconPapers (31)

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Related works:
Working Paper: CONDI: a cost-of-nominal-distortions index (2009)
Working Paper: CONDI: a cost-of-nominal-distortions index (2009)
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