EconPapers    
Economics at your fingertips  
 

The Perils of Nominal Targets

Roc Armenter (roc.armenter@phil.frb.org)

No 16-30, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: A monetary authority can be committed to pursuing an inflation, price-level, or nominal-GDP target yet systematically fail to achieve the prescribed goal. Con- strained by the zero lower bound on the policy rate, the monetary authority is unable to implement its objectives when private-sector expectations stray far enough from the target. Low-inflation expectations become self-fulfilling, resulting in an additional Markov equilibrium in which the monetary authority falls short of the nominal target, average output is below its efficient level, and the policy rate is typically low. Introducing a stabilization goal for long-term nominal rates can implement a unique Markov equilibrium without fully compromising stabilization policy.

Keywords: inflation targeting; zero lower bound; Markov equilibria (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2016-11-10
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.philadelphiafed.org/-/media/frbp/asset ... ers/2016/wp16-30.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden

Related works:
Working Paper: The perils of nominal targets (2013) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedpwp:16-30

Ordering information: This working paper can be ordered from
phil.library.mailbox@phil.frb.org

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of Philadelphia Contact information at EDIRC.
Bibliographic data for series maintained by Beth Paul (beth.paul@phil.frb.org).

 
Page updated 2024-12-28
Handle: RePEc:fip:fedpwp:16-30