Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/249594 
Year of Publication: 
2021
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 14/2021
Publisher: 
Bank of Finland, Helsinki
Abstract: 
We evaluate and compare alternative monetary policy rules, namely average inflation targeting, price level targeting, and traditional inflation targeting rules, in a standard New Keynesian model that features recurring, transient zero lower bound regimes. We use determinacy and expectational stability (E-stability) of equilibrium as the criteria for stabilization policy. We find that price level targeting policy, including nominal income targeting as a special case, most effectively promotes determinacy and E-stability among the policy frameworks, whereas standard inflation targeting rules are prone to indeterminacy. Average inflation targeting can induce determinacy and E-stability effectively, provided the averaging window is sufficiently long.
Subjects: 
Zero Lower Bound
Markov-Switching
Expectations
Price level targeting
Average inflation targeting
Nominal income targeting
JEL: 
E31
E47
E52
E58
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-391-1
Document Type: 
Working Paper

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