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Inflation and Price Level Targeting in a New Keynesian Model

Jagjit Chadha () and Charles Nolan ()

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: 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.

Keywords: inflation targets; intertemporal macro; nominal rigidities; Phillips Curve (search for similar items in EconPapers)
JEL-codes: E20 E32 F32 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mon
Date: 2002-02
Note: Ma
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