Price level targeting with evolving credibility
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A1 Alkuperäisartikkeli tieteellisessä aikakauslehdessä
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2020-12
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Language
en
Pages
16
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Journal of Monetary Economics, Volume 116, pp. 88-103
Abstract
Global learning dynamics for price-level targeting (PLT) monetary policy are analyzed and compared to inflation targeting in a nonlinear New Keynesian model. Domain of attraction of target steady state is a new robustness criterion for policy regimes. Robustness of PLT depends on whether a known target path is incorporated into learning. Credibility is measured by accuracy of this forecasting method relative to simple statistical forecasts evolving through reinforcement learning. Initial credibility and target price are key factors influencing performance. Model results are in line with the Swedish experience of price stabilization in1930's.Description
Keywords
Adaptive learning, Inflation targeting, Limited credibility, Zero interest rate lower bound
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Citation
Honkapohja, S & Mitra, K 2020, ' Price level targeting with evolving credibility ', Journal of Monetary Economics, vol. 116, pp. 88-103 . https://doi.org/10.1016/j.jmoneco.2019.09.009