Careful price level targeting
AbstractThis paper examines a class of interest rate rules that respond to public expectations and to lagged variables. Varying levels of commitment correspond to varying degrees of response to lagged output and targeting of the price level. If the response rises (unintentionally) above the optimal level, the outcome deteriorates severely. Hence, the optimal level of commitment is sensitive to the method of expectations formation and partial commitment is the robust, optimal policy.
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Bibliographic InfoPaper provided by Bank of Finland in its series Research Discussion Papers with number 30/2012.
Length: 11 pages
Date of creation: 26 Oct 2012
Date of revision:
learning; monetary policy; interest rate rules; commitment; price level targeting;
Find related papers by JEL classification:
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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