Adopting Price-Level Targeting under Imperfect Credibility: An Update
Oleksiy Kryvtsov (),
Malik Shukayev () and
Staff Working Papers from Bank of Canada
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
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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