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Monday, April 23, 2018

Price Level Targeting with Evolving Credibility

This is by Seppo Honkapohja and Kaushik Mitra (very wonkish):

Price Level Targeting with Evolving Credibility, by Seppo Honkapohja and Kaushik Mitra: Abstract We examine global dynamics under learning in a nonlinear New Keynesian model when monetary policy uses price-level targeting and compare it to inflation targeting. Domain of attraction of the targeted steady state gives a robustness criterion for policy regimes. Robustness of price-level targeting depends on whether a known target path is incorporated into learning. Credibility is measured by accuracy of this forecasting method relative to simple statistical forecasts. Credibility evolves through reinforcement learning. Initial credibility and initial level of target price are key factors influencing performance. Results match the Swedish experience of price level stabilization in 1920's and 30's.

    Posted by on Monday, April 23, 2018 at 12:31 PM in Academic Papers, Monetary Policy | Permalink  Comments (90)


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