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Comparing Inflation and Price-Level Targeting: The Role of Forward Guidance and Transparency

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  • Seppo Honkapohja
  • Kaushik Mitra

Abstract

type="main"> We examine global dynamics under learning in New Keynesian models with price-level targeting that is subject to the zero lower bound. The role of forward guidance is analyzed under transparency about the policy rule. Properties of transparent and nontransparent regimes are compared with each other and to the corresponding cases of inflation targeting. Robustness properties for different regimes are examined in terms of the domain of attraction of the targeted steady state and volatility of inflation, output and interest rate. We analyze the effect of higher inflation targets and large expectational shocks for the performance of these policy regimes.

Suggested Citation

  • Seppo Honkapohja & Kaushik Mitra, 2015. "Comparing Inflation and Price-Level Targeting: The Role of Forward Guidance and Transparency," Manchester School, University of Manchester, vol. 83, pages 27-59, December.
  • Handle: RePEc:bla:manchs:v:83:y:2015:i::p:27-59
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    Cited by:

    1. repec:eee:jmacro:v:55:y:2018:i:c:p:146-161 is not listed on IDEAS
    2. Cole, Stephen J., 2018. "The effectiveness of central bank forward guidance under inflation and price-level targeting," Journal of Macroeconomics, Elsevier, vol. 55(C), pages 146-161.

    More about this item

    JEL classification:

    • 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
    • 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

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