Scandinavian Working Papers in Economics
Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)
No 302: Price Level Targeting and Risk Management
Roberto Billi ()
Additional contact information
Roberto Billi: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Abstract: Many argue that, because the economic outlook is inherently uncertain, central banks should apply a risk management approach to monetary policy, by promising a gradual liftoff of the policy interest rate from its lower bound. Using a small New Keynesian model with the central bank operating under optimal discretion, I compare the effects of uncertainty on economic performance, respectively under strict price level targeting and nominal gross domestic product (GDP) level targeting. As the results clarify, even though uncertainty hampers the effectiveness of monetary policy, the extent to which a central bank should delay liftoff depends crucially on its policy framework.
Keywords: nominal level targets; optimal policy; inertial Taylor rule
34 pages, First version: June 1, 2015. Revised: February 1, 2016.
Full text files
rap_wp302_160224_revised.pdf
Questions (including download problems) about the papers in this series should be directed to Lena Löfgren ()
Report other problems with accessing this service to Sune Karlsson ().
RePEc:hhs:rbnkwp:0302This page generated on 2024-09-13 22:16:57.