Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/53972 
Year of Publication: 
2008
Series/Report no.: 
Bank of Canada Working Paper No. 2008-37
Publisher: 
Bank of Canada, Ottawa
Abstract: 
This paper measures the welfare gains of switching from inflation-targeting to price-level targeting under imperfect credibility. Vestin (2006) shows that when the monetary authority cannot commit to future policy, price-level targeting yields higher welfare than inflation targeting. We revisit this issue by introducing imperfect credibility, which is modeled as gradual adjustment of the private sector's beliefs about the policy change. We find that gains from switching to pricelevel targeting are small. A welfare loss occurs, if imperfect credibility is highly persistent.
Subjects: 
Credibility
Monetary policy framework
JEL: 
E31
E52
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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