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Implications for determinacy with average inflation targeting

Author

Listed:
  • Yamin Ahmad

    (University of Wisconsin - Whitewater)

  • James Murray

    (University of Wisconsin - La Crosse)

Abstract

We use a standard New Keynesian model to explore implications of backward- and forward-looking windows for monetary policy with average inflation targeting and investigate the conditions for determinacy. A unique equilibrium rules out sunspot shocks that can lead to self-fulfilling shocks for inflation expectations. We find limitations for the length of the forward window and demonstrate how this depends on other parameters in the model, including parameters governing monetary policy and expectations formation.

Suggested Citation

  • Yamin Ahmad & James Murray, 2023. "Implications for determinacy with average inflation targeting," Economics Bulletin, AccessEcon, vol. 43(1), pages 510-517.
    • Handle: RePEc:ebl:ecbull:eb-22-00560
    as

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    References listed on IDEAS

    as
    1. Olivier Coibion & Yuriy Gorodnichenko & Edward S. Knotek & Raphael Schoenle, 2023. "Average Inflation Targeting and Household Expectations," Journal of Political Economy Macroeconomics, University of Chicago Press, vol. 1(2), pages 403-446.
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    3. Hoffmann, Mathias & Moench, Emanuel & Pavlova, Lora & Schultefrankenfeld, Guido, 2022. "Would households understand average inflation targeting?," Journal of Monetary Economics, Elsevier, vol. 129(S), pages 52-66.
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    6. Thomas A. Lubik & Frank Schorfheide, 2004. "Testing for Indeterminacy: An Application to U.S. Monetary Policy," American Economic Review, American Economic Association, vol. 94(1), pages 190-217, March.
    7. Nessen, Marianne & Vestin, David, 2005. "Average Inflation Targeting," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(5), pages 837-863, October.
    8. Piergallini, Alessandro, 2022. "Average inflation targeting and macroeconomic stability," Economics Letters, Elsevier, vol. 219(C).
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    More about this item

    Keywords

    Average Inflation Targeting; Indeterminacy; Monetary Policy; Policy Window;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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