Price‐Level Targeting and Stabilization Policy

Aleksander Berentsen and Christopher Waller

Journal of Money, Credit and Banking, 2011, vol. 43, issue s2, 559-580

Abstract: We construct a dynamic stochastic general equilibrium model to study optimal monetary stabilization policy. Prices are fully flexible and money is essential for trade. Our main result is that if the central bank pursues a price‐level target, it can control inflation expectations and improve welfare by stabilizing short‐run shocks to the economy. The optimal policy involves smoothing nominal interest rates that effectively smooths consumption across states.

Date: 2011
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https://doi.org/10.1111/j.1538-4616.2011.00452.x

Related works:
Journal Article: Price-level targeting and stabilization policy (2013)
Journal Article: Price-Level Targeting and Stabilization Policy (2011)
Working Paper: Price level targeting and stabilization policy (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:43:y:2011:i:s2:p:559-580

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