Inflation and Price Level Targeting in a New Keynesian Model
Chadha, Jagjit S.
Cambridge Working Papers in Economics
Faculty of Economics
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Chadha, J. S., & Nolan, C. (2004). Inflation and Price Level Targeting in a New Keynesian Model. https://doi.org/10.17863/CAM.5372
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.
Classification-JEL: E20, E32, F32, F41, inflation targets, intertemporal macro, nominal rigidities, Phillips Curve
This record's DOI: https://doi.org/10.17863/CAM.5372
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