Price-Level versus Inflation Targeting with Financial Market Imperfections
Francisco Covas () and
Yahong Zhang ()
Staff Working Papers from Bank of Canada
This paper compares price-level-path targeting (PT) with inflation targeting (IT) in a sticky-price, dynamic, general equilibrium model augmented with imperfections in both the debt and equity markets. Using a Bayesian approach, we estimate this model for the Canadian economy. We show that the model with both debt and equity market imperfections fits the data better and use it to compare PT versus the estimated current IT regime. We find that in general PT outperforms the current IT regime. However, the gain is lower when financial market imperfections are taken into account.
Keywords: Monetary policy framework; Inflation targets; Economic models (search for similar items in EconPapers)
JEL-codes: E40 E50 (search for similar items in EconPapers)
Pages: 42 pages
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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Journal Article: Price-level versus inflation targeting with financial market imperfections (2010)
Journal Article: Price‐level versus inflation targeting with financial market imperfections (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:08-26
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