Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/189925
Authors: 
Billi, Roberto
Year of Publication: 
2016
Series/Report no.: 
Sveriges Riksbank Working Paper Series 302
Abstract: 
Many argue that, because the outlook for the economy is uncertain, monetary policy should apply a risk management approach by raising the policy interest rate gradually from its lower bound. Using a small New Keynesian model, I study the impact of outlook uncertainty on the economic performance of a central bank with a target for the price level or the level of nominal gross domestic product. I show that, in the presence of persistent supply and demand shocks, a price-level target is more effective at mitigating outlook uncertainty because it induces greater policy inertia and improves the tradeo¤s faced by the central bank.
Subjects: 
nominal level targets
optimal policy
inertial Taylor rule
JEL: 
E31
E52
E58
Document Type: 
Working Paper
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