Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/240346 
Year of Publication: 
2021
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 6/2021
Publisher: 
Bank of Finland, Helsinki
Abstract: 
This paper considers the performance of average inflation targeting (AIT) policy in a New Keynesian model with adaptive learning agents. Our analysis raises concerns regarding robustness of AIT when agents have imperfect knowledge. In particular, the target steady state can be locally unstable under learning if details about the policy are not publicly available. Near the low steady state with interest rates at the zero lower bound, AIT does not necessarily outperform a standard inflation targeting policy. Policymakers can improve outcomes under AIT by (i) targeting a discounted average of inflation, or (ii) communicating the data window for the target.
Subjects: 
Adaptive Learning
Inflation Targeting
Zero Interest Rate Lower Bound
JEL: 
E31
E52
E58
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-373-7
Document Type: 
Working Paper

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