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Inflation and Price Level Targeting in a New Keynesian Model

  • Chadha, J.S.
  • Charles Nolan

In a New Keynesian macroeconomic model under credible commitment, price level targeting dominates inflation targeting. But with sufficient inflation aversion the inflation targeting central bank can produce quantitatively similar results to one targeting the price level. The current degree of inflation aversion demonstrated by the Bank of England may be sufficient to reap the benefits of price level targeting.

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File URL: http://www.econ.cam.ac.uk/research/repec/cam/pdf/wp0203.pdf
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Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0203.

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Length: 35
Date of creation: Feb 2002
Date of revision:
Handle: RePEc:cam:camdae:0203
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Contact details of provider: Web page: http://www.econ.cam.ac.uk/index.htm

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  10. Edward Nelson, 2000. "UK monetary policy 1972-97: a guide using Taylor rules," Bank of England working papers 120, Bank of England.
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  18. Canzoneri, Matthew B & Nolan, Charles & Yates, Tony, 1996. "Mechanisms for Achieving Monetary Stability: Inflation Targeting Versus the ERM," CEPR Discussion Papers 1418, C.E.P.R. Discussion Papers.
  19. Frederic S. Mishkin, 2000. "Inflation Targeting in Emerging-Market Countries," American Economic Review, American Economic Association, vol. 90(2), pages 105-109, May.
  20. Michael Woodford, 1996. "Control of the Public Debt: A Requirement for Price Stability?," NBER Working Papers 5684, National Bureau of Economic Research, Inc.
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