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The Effectiveness of Central Bank Forward Guidance under Inflation and Price-Level Targeting

Stephen Cole ()

No 2016-06, Working Papers and Research from Marquette University, Center for Global and Economic Studies and Department of Economics

Abstract: This paper examines the effectiveness of central bank forward guidance under inflation and price-level targeting monetary policies. The results show that the attenuation of the effects of forward guidance can be solved if a central bank switches from inflation targeting to price-level targeting. Output and inflation respond more favorably to forward guidance with price-level targeting than inflation targeting. A monetary policy rule that aggressively reacts to inflation and includes interest rate inertia narrows the performance gap between the two policy regimes. However, forward guidance with price-level targeting is still preferred to forward guidance with inflation targeting after performing multiple robustness checks.

Keywords: Forward Guidance; In ation Targeting; Price-Level Targeting; Monetary Policy (search for similar items in EconPapers)
JEL-codes: E30 E31 E50 E52 E58 E60 (search for similar items in EconPapers)
Date: 2016-08
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-sog
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http://epublications.marquette.edu/econ_workingpapers/56 (application/pdf)

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Journal Article: The effectiveness of central bank forward guidance under inflation and price-level targeting (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:mrq:wpaper:2016-06

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