Abstract :
Does Ramseyoptimalpolicycallforadjustingtheinflationtargetbythesizeofthe
qualitybiasinmeasuredinflation?Wefindthatifitisnonhedonic(orsticker)prices
that aresticky,theconventionalview,accordingtowhichitisoptimaltoadjustthe
inflationtargetupwardbythesizeofthequalitybias,ismisguided.Furthermore,we
establishthatqualityimprovementiscrucialforthedeterminationoftheoptimal
inflationtargetevenintheabsenceofqualitybias.Inthiscase,ifnonhedonicpricesare
sticky,stickerpricesshouldfallattherateofqualitygrowth
