Citation
Discussion Paper Details
Please find the details for DP12739 in an easy to copy and paste format below:
Full Details | Bibliographic Reference
Full Details
Title: Price Level Targeting with Evolving Credibility
Author(s): Seppo Honkapohja and Kaushik Mitra
Publication Date: February 2018
Keyword(s): Adaptive Learning, Inflation targeting, Limited Credibility and Zero Interest Rate Lower Bound
Programme Area(s): Monetary Economics and Fluctuations
Abstract: We examine global dynamics under learning in a nonlinear New Keynesian model when monetary policy uses price-level targeting and compare it to inflation targeting. Domain of attraction of the targeted steady state gives a robustness criterion for policy regimes. Robustness of price-level targeting 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. Credibility evolves through reinforcement learning. Initial credibility and initial level of target price are key factors influencing performance. Results match the Swedish experience of price level stabilization in 1920's and 30's.
For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=12739
Bibliographic Reference
Honkapohja, S and Mitra, K. 2018. 'Price Level Targeting with Evolving Credibility'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=12739