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Title:Price-level versus inflation targeting with financial market imperfections PDF Logo
Authors:Covas, Francisco
Zhang, Yahong
Issue Date:2008
Series/Report no.:Bank of Canada Working Paper 2008,26
Abstract:This paper compares price-level-path targeting (PT) with inflation targeting (IT) in a sticky-price, dynamic, general equilibrium model augmented with imperfections in both the debt and equity markets. Using a Bayesian approach, we estimate this model for the Canadian economy. We show that the model with both debt and equity market imperfections fits the data better and use it to compare PT versus the estimated current IT regime. We find that in general PT outperforms the current IT regime. However, the gain is lower when financial market imperfections are taken into account.
Subjects:Monetary policy framework
Inflation targets
Economic models
JEL:E40
E50
Document Type:Working Paper
Appears in Collections:Bank of Canada Working Papers

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