Targeting nominal GDP or prices: Guidance and expectation dynamics
AbstractWe examine global dynamics under infinite-horizon learning in New Keynesian models where monetary policy practices either pricelevel or nominal GDP targeting and compare these regimes to inflation targeting. These interest-rate rules are subject to the zero lower bound. Robustness of the three rules in learning adjustment are compared using criteria for the domain of attraction of the targeted steady state, volatility of inflation and output and sensitivity to the speed of learning parameter. Performance of price-level and nominal GDP targeting significantly improves if the additional guidance in these regimes is incorporated in private agents’ learning.
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Bibliographic InfoPaper provided by Bank of Finland in its series Research Discussion Papers with number 4/2014.
Length: 47 pages
Date of creation: 15 Jan 2014
Date of revision:
adaptive learning; monetary policy; inflation targeting; zero interest rate lower bound;
Find related papers by JEL classification:
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-02-08 (All new papers)
- NEP-MAC-2014-02-08 (Macroeconomics)
- NEP-MON-2014-02-08 (Monetary Economics)
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