Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/311104 
Year of Publication: 
2024
Series/Report no.: 
ECB Working Paper No. 2955
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
We analyze the optimal window length in the average inflation targeting rule within a Behavioral THANK model. The central bank faces an occasionally binding effective lower bound (ELB) or persistent supply shocks, and can also use quantitative easing. We show that the optimal averaging period is infinitely long given a conventional degree of myopia. Finite yet long-lasting windows dominate for higher cognitive discounting; i.e., the makeup property is shown to be qualitatively resistant to deviation from rational expectations. We point out that the optimal window may depend on the speed of return to the target path. We solve the model both locally and globally to disentangle the effects of uncertainty due to the ELB. The welfare loss difference between solution techniques is considerably decreasing in the degree of history dependence.
Subjects: 
Monetary Policy
Average Inflation Targeting
Heterogeneous Agents
Behavioral Macroeconomics
JEL: 
31
E32
E52
E58
E71
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-6765-5
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.