The effectiveness of central bank forward guidance under inflation and price-level targeting

Stephen Cole

Journal of Macroeconomics, 2018, vol. 55, issue C, 146-161

Abstract: This paper examines the effectiveness of central bank forward guidance under inflation and price-level targeting monetary policies. The results show that the beneficial effects of forward guidance increase if a central bank pursues price-level targeting instead of inflation targeting. Output and inflation respond more favorably to forward guidance with price-level targeting than inflation targeting. A monetary policy rule that aggressively reacts to inflation and includes interest rate inertia narrows the performance gap between the two policy regimes. However, forward guidance with price-level targeting is still preferred to forward guidance with inflation targeting after performing multiple robustness checks.

Keywords: Forward guidance; Inflation targeting; Price-level targeting; Monetary policy (search for similar items in EconPapers)
JEL-codes: E30 E31 E50 E52 E58 E60 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (6)

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Working Paper: The Effectiveness of Central Bank Forward Guidance under Inflation and Price-Level Targeting (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:55:y:2018:i:c:p:146-161

DOI: 10.1016/j.jmacro.2017.10.008

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