Careful price level targeting
Waters, George A. (26.10.2012)
Numero
30/2012Julkaisija
Bank of Finland
2012
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:bof-20140807170Tiivistelmä
This paper examines a class of interest rate rules that respond to public expectations and to lagged variables. Varying levels of commitment correspond to varying degrees of response to lagged output and targeting of the price level. If the response rises (unintentionally) above the optimal level, the outcome deteriorates severely. Hence, the optimal level of commitment is sensitive to the method of expectations formation and partial commitment is the robust, optimal policy. Keywords: Learning, Monetary Policy, Interest Rate Rules, Commitment, Price Level Targeting JEL classification: E52, E31, D84