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Inflation and Price Level Targeting in a New Keynesian Model
Author(s) -
Chadha Jagjit S.,
Nolan Charles
Publication year - 2002
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/1467-9957.00301
Subject(s) - economics , inflation (cosmology) , inflation targeting , new keynesian economics , price level , keynesian economics , monetary economics , monetary policy , central bank , price setting , macroeconomics , microeconomics , physics , theoretical physics
In a New Keynesian macroeconomic model under credible commitment, price level targeting dominates inflation targeting. But with sufficient inflation aversion the inflation–targeting central bank can produce quantitatively similar results to one targeting the price level. The current degree of inflation aversion demonstrated by the Bank of England may be sufficient to reap the benefits of price level targeting.