Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/241197 
Year of Publication: 
2020
Series/Report no.: 
Bank of Canada Staff Working Paper No. 2020-31
Publisher: 
Bank of Canada, Ottawa
Abstract: 
The Great Recession and current pandemic have focused attention on the constraint on nominal interest rates from the effective lower bound. This has renewed interest in monetary policies that embed makeup strategies, such as price-level or average-inflation targeting. This paper examines the properties of average-inflation targeting in a two-agent New Keynesian (TANK) model in which a fraction of firms have adaptive expectations. We examine the optimal degree of history dependence under average-inflation targeting and find it to be relatively short for business cycle shocks of standard magnitude and duration. In this case, we show that the properties of the economy are quantitatively similar to those under a pricelevel target.
Subjects: 
Monetary policy framework
Business fluctuations and cycles
Economic models
JEL: 
E31
E32
E52
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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