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Title:Adopting price-level targeting under imperfect credibility: An update PDF Logo
Authors:Kryvtsov, Oleksiy
Shukayev, Malik
Ueberfeldt, Alexander
Issue Date:2008
Series/Report no.:Bank of Canada Working Paper 2008,37
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
Document Type:Working Paper
Appears in Collections:Bank of Canada Working Papers

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