Optimal monetary policy under bounded rationality

Jonathan Benchimol and Lahcen Bounader

No 9/2018, Bank of Finland Research Discussion Papers from Bank of Finland

Abstract: Optimal monetary policy under discretion, commitment, and optimal simple rules regimes is analyzed through a behavioral New Keynesian model. Flexible price level targeting dominates under discretion; flexible inflation targeting dominates under commitment; and strict price level targeting dominates when using optimal simple rules. The optimality of a particular regime is found to be independent of bounded rationality and only regime 's stabilizing properties condition its hierarchy. For every targeting regime, the policymaker 's knowledge of agents' myopia is decisive in terms of policy reactions. Welfare evaluation of different targeting regimes reveals that bounded rationality is not necessarily associated with decreased welfare. Several forms of economic inattention can increase welfare.

JEL-codes: C53 D01 D11 E37 E52 (search for similar items in EconPapers)
Date: 2018
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/212417/1/bof-rdp2018-009.pdf (application/pdf)

Related works:
Journal Article: Optimal monetary policy under bounded rationality (2023)
Working Paper: Optimal monetary policy under bounded rationality (2023)
Working Paper: Optimal Monetary Policy Under Bounded Rationality (2021)
Working Paper: Optimal Monetary Policy under Bounded Rationality (2019)
Working Paper: Optimal Monetary Policy Under Bounded Rationality (2019)
Working Paper: Optimal Monetary Policy Under Bounded Rationality (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofrdp:rdp2018_009

Access Statistics for this paper

More papers in Bank of Finland Research Discussion Papers from Bank of Finland Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().