Inflation Targeting, Price-Level Targeting, the Zero Lower Bound, and Indeterminacy

Steven Ambler () and Jean-Paul Lam

Working Paper series from Rimini Centre for Economic Analysis

Abstract: We compare inflation targeting and price-level targeting in the canonical New Keynesian model, with particular attention to multiple steady-states, indeterminacy, and global stability. Under price-level targeting we show the following: 1) the well-known problem of multiple steady-state equilibria under inflation targeting is absent; 2) the model’s dynamics close to the steady state are determinate for a much wider range of parameter values; 3) the model is globally saddlepoint stable. These results provide additional arguments in favour of price-level targeting as a monetary policy framework.

Date: 2015-02
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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