Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212417 
Year of Publication: 
2018
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 9/2018
Publisher: 
Bank of Finland, Helsinki
Abstract: 
Optimal monetary policy under discretion, commitment, and optimal simple rules regimes is analyzed through a behavioral New Keynesian model. Flexible price level targeting dominates under discretion; flexible inflation targeting dominates under commitment; and strict price level targeting dominates when using optimal simple rules. The optimality of a particular regime is found to be independent of bounded rationality and only regime 's stabilizing properties condition its hierarchy. For every targeting regime, the policymaker 's knowledge of agents' myopia is decisive in terms of policy reactions. Welfare evaluation of different targeting regimes reveals that bounded rationality is not necessarily associated with decreased welfare. Several forms of economic inattention can increase welfare.
JEL: 
C53
E37
E52
D01
D11
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-222-8
Document Type: 
Working Paper

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