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Adopting Price-Level Targeting under Imperfect Credibility: An Update

Oleksiy Kryvtsov (), Malik Shukayev () and Alexander Ueberfeldt

Staff Working Papers from Bank of Canada

Abstract: This paper measures the welfare gains of switching from inflation-targeting to price-level targeting under imperfect credibility. Vestin (2006) shows that when the monetary authority cannot commit to future policy, price-level targeting yields higher welfare than inflation targeting. We revisit this issue by introducing imperfect credibility, which is modeled as gradual adjustment of the private sector's beliefs about the policy change. We find that gains from switching to price-level targeting are small. A welfare loss occurs, if imperfect credibility is highly persistent.

Keywords: Credibility; Monetary policy framework (search for similar items in EconPapers)
JEL-codes: E31 E52 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2008
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:08-37

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