Inflation and Price Level Targeting in a New Keynesian Model
Jagjit S. Chadha, Charles R. Nolan
Abstract
Open-access reader
Jagjit S. Chadha, Charles R. Nolan
Abstract
Open-access reader
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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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.
Key concepts: Economics, Inflation targeting, New Keynesian economics, Inflation (cosmology), Monetary economics, Price level, Keynesian economics, Monetary policy