Price-level versus inflation targeting with financial market imperfections

Francisco Covas () and Yahong Zhang

Canadian Journal of Economics, 2010, vol. 43, issue 4, 1302-1332

Abstract: Price-level targeting (PT) is compared with inflation targeting (IT) in a DSGE model augmented with imperfections in both debt and equity markets. The PT regime outperforms the IT regime, and the gain depends on the degree of financial market frictions. This is because inflation is better anchored under PT, owing to the expectation channel, and therefore the monetary authority has more leverage to deal with the financial market distortions. We also find that the gain is higher if the optimal rule reacts to asset prices instead of the output gap, and the rule requires a positive response to asset prices.

JEL-codes: E31 E44 E52 (search for similar items in EconPapers)
Date: 2010
References: Add references at CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
https://doi.org/10.1111/j.1540-5982.2010.01615.x (text/html)
access restricted to subscribers

Related works:
Working Paper: Price-Level versus Inflation Targeting with Financial Market Imperfections (2008)
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:cje:issued:v:43:y:2010:i:4:p:1302-1332

Ordering information: This journal article can be ordered from
https://www.economic ... ionen/membership.php

Access Statistics for this article

Canadian Journal of Economics is currently edited by Zhiqi Chen

More articles in Canadian Journal of Economics from Canadian Economics Association Canadian Economics Association Prof. Werrner Antweiler, Treasurer UBC Sauder School of Business 2053 Main Mall Vancouver, BC, V6T 1Z2. Contact information at EDIRC.
Bibliographic data for series maintained by Prof. Werner Antweiler ().