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Inflation Targeting, Price-Level Targeting, the Zero Lower Bound, and Indeterminacy

Author

Listed:
  • Steve Ambler

    (CIRPÉE, UQAM, C.D. Howe Institute; The Rimini Centre for Economic Analysis, Italy)

  • Jean-Paul Lam

    () (Department of Economics, University of Waterloo; The Rimini Centre for Economic Analysis, Italy)

Abstract

We compare inflation targeting and price-level targeting in the canonical New Keynesian model, with particular attention to multiple steady-states, indeterminacy, and global stability. Under price-level targeting we show the following: 1) the well-known problem of multiple steady-state equilibria under inflation targeting is absent; 2) the model’s dynamics close to the steady state are determinate for a much wider range of parameter values; 3) the model is globally saddlepoint stable. These results provide additional arguments in favour of price-level targeting as a monetary policy framework.

Suggested Citation

  • Steve Ambler & Jean-Paul Lam, 2015. "Inflation Targeting, Price-Level Targeting, the Zero Lower Bound, and Indeterminacy," Working Paper series 15-03, Rimini Centre for Economic Analysis.
  • Handle: RePEc:rim:rimwps:15-03
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