Research Discussion Paper – RDP 9807 Inflation Targeting in a Small Open Economy

Contents

• Introduction
• Inflation Targeting in an Open Economy
• Non-traded and Traded Inflation – Some Empirical Evidence
• Theoretical Model
• Results for Model A
• Extensions to the Basic Model
• Conclusion
• Appendix A: Data
• Appendix B: State-space Forms
• Appendix C: Further Results
• References

We would like to thank Philip Lowe, Lars Svensson and David Gruen for helpful suggestions. We are extremely grateful to Luci Ellis for training us in the use of Mathematica 3.0. Any remaining errors are ours. The views expressed are those of the authors and should not be attributed to the Reserve Bank of Australia.