IDEAS home Printed from https://ideas.repec.org/a/eee/ecolet/v88y2005i3p336-342.html

Inflation-targeting, price-path targeting and indeterminacy

Author

Listed:
  • Dittmar, Robert D.
  • Gavin, William T.

Abstract

In this paper, we examine the areas of indeterminacy in a flexible price RBC model with shopping time role for money and a central bank that uses an interest rate rule to target inflation and/or the price level. We present analytical results showing that, although inflation targeting often results in real indeterminacy, a price level target generally delivers a unique equilibrium for a relevant range of policy parameters.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Dittmar, Robert D. & Gavin, William T., 2005. "Inflation-targeting, price-path targeting and indeterminacy," Economics Letters, Elsevier, vol. 88(3), pages 336-342, September.
    • Handle: RePEc:eee:ecolet:v:88:y:2005:i:3:p:336-342
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0165-1765(05)00136-9
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or

    for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Benhabib, Jess & Farmer, Roger E.A., 1999. "Indeterminacy and sunspots in macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 6, pages 387-448, Elsevier.
    2. Carlstrom, Charles T. & Fuerst, Timothy S., 2001. "Timing and real indeterminacy in monetary models," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 285-298, April.
    3. Jess Benhabib & Stephanie Schmitt-Grohe & Martin Uribe, 2003. "Backward-looking interest-rate rules, interest-rate smoothing, and macroeconomic instability," Proceedings, Federal Reserve Bank of Cleveland, pages 1379-1423.
    4. McCallum, Bennett T., 1986. "Some issues concerning interest rate pegging, price level determinacy, and the real bills doctrine," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 135-160, January.
    5. McCallum, Bennett T., 1981. "Price level determinacy with an interest rate policy rule and rational expectations," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 319-329.
    6. Robert D. Dittmar & William T. Gavin & Finn E. Kydland, 2005. "Inflation Persistence And Flexible Prices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(1), pages 245-261, February.
    7. Marc P. Giannoni, 2010. "Optimal Interest-Rate Rules in a Forward-Looking Model, and Inflation Stabilization versus Price-Level Stabilization," NBER Working Papers 15986, National Bureau of Economic Research, Inc.
    8. Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 241-254, April.
    9. Woodford, Michael, 2003. "Comment on: Multiple-solution indeterminacies in monetary policy analysis," Journal of Monetary Economics, Elsevier, vol. 50(5), pages 1177-1188, July.
    10. McCallum, Bennett T., 2003. "Multiple-solution indeterminacies in monetary policy analysis," Journal of Monetary Economics, Elsevier, vol. 50(5), pages 1153-1175, July.
    11. Charles T. Carlstrom & Timothy S. Fuerst, 2001. "Real Indeterminacy in Monetary Models with Nominal Interest Rate Distortions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(4), pages 767-789, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Karagiannides, Gabriel, 2018. "Exploring the Determinacy Dynamics in an Open Economy," MPRA Paper 89268, University Library of Munich, Germany.
    2. Garcés Díaz Daniel, 2017. "Explaining Inflation with a Classical Dichotomy Model and Switching Monetary Regimes: Mexico 1932-2013," Working Papers 2017-20, Banco de México.
    3. Guender, Alfred V. & Oh, Do Yoon, 2006. "Price stability through price-level targeting or inflation targeting? A tale of two experiments," Journal of Economics and Business, Elsevier, vol. 58(5-6), pages 373-391.
    4. Sofía Bauducco & Rodrigo Caputo, 2013. "Wicksell Versus Taylor: A Quest for Determinancy and the (IR) Relevance of the Taylor Principle," Working Papers Central Bank of Chile 705, Central Bank of Chile.
    5. Dib, Ali & Mendicino, Caterina & Zhang, Yahong, 2013. "Price-level targeting rules and financial shocks: The case of Canada," Economic Modelling, Elsevier, vol. 30(C), pages 941-953.
    6. Oleksiy Kryvtsov & Malik Shukayev & Alexander Ueberfeldt, 2007. "Optimal Monetary Policy and Price Stability Over the Long-Run," Staff Working Papers 07-26, Bank of Canada.
    7. Bordo Michael D. & Dittmar Robert D & Gavin William T., 2007. "Gold, Fiat Money, and Price Stability," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-31, August.
    8. Stephen G. Cecchetti & Stefan Krause, 2007. "Inflation Targeting versus Price-Path Targeting: Looking for Improvements," Central Banking, Analysis, and Economic Policies Book Series, in: Frederic S. Miskin & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Monetary Policy under Inflation Targeting, edition 1, volume 11, chapter 8, pages 265-290, Central Bank of Chile.
    9. Gabriel Karagiannides & Christos Liambas, 2019. "Determinacy and Taylor’s Rule with Different Degrees of Trade Openness in a Semi-New Keynesian Model," Applied Economics and Finance, Redfame publishing, vol. 6(6), pages 43-53, November.
    10. William A. Barnett & Unal Eryilmaz, 2022. "Monetary Policy and Determinacy: An Inquiry in Open Economy New Keynesian Framework," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 202203, University of Kansas, Department of Economics.
    11. Eagle, David, 2007. "Revealing the naked truth behind price determinacy, infinite-horizon rational expectations, and inflation targeting," MPRA Paper 1538, University Library of Munich, Germany.
    12. William A. Barnett & Unal Eryilmaz, 2023. "Monetary Policy and Determinacy: An Inquiry into Open Economy New Keynesian Macrodynamics," Open Economies Review, Springer, vol. 34(2), pages 217-253, April.
    13. Mark Weder, 2008. "Money growth rules as stabilization policies in open economies," International Economic Journal, Taylor & Francis Journals, vol. 22(4), pages 525-537.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chen, Shu-hua & Shaw, Ming-fu & Lai, Ching-chong & Chang, Juin-jen, 2008. "Interest-rate rules and transitional dynamics in an endogenously growing open economy," Journal of International Money and Finance, Elsevier, vol. 27(1), pages 54-75, February.
    2. Hippolyte d'Albis & Emmanuelle Augeraud-Véron & Hermen Jan Hupkes, 2012. "Backward- versus Forward-Looking Feedback Interest Rate Rules," Documents de travail du Centre d'Economie de la Sorbonne 12051, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    3. d'Albis, Hippolyte & Augeraud-Véron, Emmanuelle & Hupkes, Hermen Jan, 2014. "Bounded interest rate feedback rules in continuous-time," Journal of Economic Dynamics and Control, Elsevier, vol. 39(C), pages 227-236.
    4. Adão, Bernardino & Correia, Isabel & Teles, Pedro, 2014. "Short and long interest rate targets," Journal of Monetary Economics, Elsevier, vol. 66(C), pages 95-107.
    5. repec:spo:wpecon:info:hdl:2441/2961 is not listed on IDEAS
    6. Carlstrom, Charles T. & Fuerst, Timothy S., 1995. "Interest rate rules vs. money growth rules a welfare comparison in a cash-in-advance economy," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 247-267, November.
    7. Jérôme Creel & Henri Sterdyniak, 2001. "La théorie budgétaire du niveau des prix, un bilan critique," Revue d'économie politique, Dalloz, vol. 111(6), pages 909-939.
    8. repec:spo:wpmain:info:hdl:2441/5122 is not listed on IDEAS
    9. Roger E.A. Farmer, 2019. "The Indeterminacy School in Macroeconomics," NBER Working Papers 25879, National Bureau of Economic Research, Inc.
    10. Friedman, Benjamin M. & Kuttner, Kenneth N., 2010. "Implementation of Monetary Policy: How Do Central Banks Set Interest Rates?," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 24, pages 1345-1438, Elsevier.
    11. Cushing, Matthew J., 1999. "The indeterminacy of prices under interest rate pegging: The non-Ricardian case," Journal of Monetary Economics, Elsevier, vol. 44(1), pages 131-148, August.
    12. Michael Magill & Martine Quinzii, 2014. "Term structure and forward guidance as instruments of monetary policy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 56(1), pages 1-32, May.
    13. repec:spo:wpmain:info:hdl:2441/2961 is not listed on IDEAS
    14. Charles T. Carlstrom & Timothy S. Fuerst, 2000. "Forward-looking versus backward-looking Taylor rules," Working Papers (Old Series) 0009, Federal Reserve Bank of Cleveland.
    15. repec:hum:wpaper:sfb649dp2008-054 is not listed on IDEAS
    16. Berger, Helge & Harjes, Thomas & Stavrev, Emil, 2008. "The ECB's monetary analysis revisited," Discussion Papers 2008/14, Free University Berlin, School of Business & Economics.
    17. repec:spo:wpecon:info:hdl:2441/5122 is not listed on IDEAS
    18. McCallum, Bennett T., 2001. "Indeterminacy, bubbles, and the fiscal theory of price level determination," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 19-30, February.
    19. Roger E A Farmer, 2019. "The Indeterminacy Agenda in Macroeconomics," National Institute of Economic and Social Research (NIESR) Discussion Papers 507, National Institute of Economic and Social Research.
    20. Klaus Masuch & Sergio Nicoletti-Altimari & Massimo Rostagno & Huw Pill, 2003. "The role of money in monetary policymaking," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy in a changing environment, volume 19, pages 158-191, Bank for International Settlements.
    21. Jean-Pascal Benassy, 2000. "Price Level Determinacy under a Pure Interest Rate Peg," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(1), pages 194-211, January.
    22. Christian A. Stoltenberg, 2012. "Real Balance Effects, Timing, and Equilibrium Determination," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(5), pages 981-994, August.
    23. McCallum, Bennett T., 1999. "Issues in the design of monetary policy rules," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 23, pages 1483-1530, Elsevier.
    24. Bernardino Adão & Pedro Teles, 2004. "Monetary Policy with State Contingent Interest Rates," Working Papers w200418, Banco de Portugal, Economics and Research Department.
    25. Michael Dotsey & Andreas Hornstein, 2008. "On the implementation of Markov-perfect interest rate and money supply rules: global and local uniqueness," Working Papers 08-30, Federal Reserve Bank of Philadelphia.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecolet:v:88:y:2005:i:3:p:336-342. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ecolet .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.