Premium
The Advantage of Flexible Targeting Rules
Author(s) -
FERRERO ANDREA
Publication year - 2012
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2012.00513.x
Subject(s) - determinacy , economics , indeterminacy (philosophy) , output gap , debt , inflation (cosmology) , inflation targeting , monetary economics , constant (computer programming) , value (mathematics) , fiscal policy , interest rate , monetary policy , macroeconomics , computer science , mathematics , mathematical analysis , programming language , physics , quantum mechanics , machine learning , theoretical physics
This paper investigates the consequences of debt stabilization for inflation targeting. If the fiscal authority holds constant the real value of debt at maturity under strict inflation targeting, the equilibrium dynamics are indeterminate for a wide range of parameters and steady‐state fiscal stances. “Flexible” targeting rules that include a concern for stabilization of the output gap can restore determinacy of the equilibrium. Flexible inflation targeting appears to be more robust than flexible debt targeting to alternative parameterizations. The fiscal authority can prevent indeterminacy under strict targeting rules by committing to hold constant debt net of interest rate spending.