Careful Price Level Targeting

George Waters

A chapter in Monetary Policy in the Context of the Financial Crisis: New Challenges and Lessons, 2015, vol. 24, pp 29-40 from Emerald Group Publishing Limited

Abstract: This chapter 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. The policymaker should adjust the price level toward a target, but complete adjustment is neither necessary nor desirable.

Keywords: learning; monetary policy; interest rate rules; commitment; price level targeting; E52; E31; D84 (search for similar items in EconPapers)
Date: 2015
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Related works:
Working Paper: Careful price level targeting (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eme:isetez:s1571-038620150000024014

DOI: 10.1108/S1571-038620150000024014

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