Careful price level targeting

George Waters

No 30/2012, Bank of Finland Research Discussion Papers from Bank of Finland

Abstract: 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 (search for similar items in EconPapers)
JEL-codes: D84 E31 E52 (search for similar items in EconPapers)
Date: 2012
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Chapter: Careful Price Level Targeting (2015)
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