Research Discussion Papers, Bank of Finland
George A. Waters
Careful price level targeting
Abstract: This paper examines a class of interest rate rules that
respond to public expectations and to lagged variables. Varying levels of
commitment correspond to varying degrees of response to lagged output and
targeting of the price level. If the response rises (unintentionally) above
the optimal level, the outcome deteriorates severely. Hence, the optimal
level of commitment is sensitive to the method of expectations formation
and partial commitment is the robust, optimal policy.
Keywords: learning; monetary policy; interest rate rules; commitment; price level targeting; (follow links to similar papers)
JEL-Codes: D84; E31; E52; (follow links to similar papers)
11 pages, October 26, 2012
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