Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/229008 
Year of Publication: 
2020
Series/Report no.: 
ECB Working Paper No. 2394
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
Assigning a discretionary central bank a mandate to stabilize an average in ation raterather than a period-by-period in ation ratencreases welfare in a New Keynesian model with an occasionally binding lower bound on nominal interest rates. Under rational expecta- tions, the welfare-maximizing averaging window is infinitely long, which means that optimal average in ation targeting (AIT) is equivalent to price level targeting (PLT). However, AIT with a finite, but sufficiently long, averaging window can attain most of the welfare gain from PLT. Under boundedly-rational expectations, if cognitive limitations are sufficiently strong, the optimal averaging window is finite, and the welfare gain of adopting AIT can be small.
Subjects: 
Monetary Policy Objectives
Makeup Strategies
Liquidity Trap
Deationary Bias
Expectations
JEL: 
E31
E52
E58
E61
E71
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-4037-5
Document Type: 
Working Paper

Files in This Item:
File
Size





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