Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/261265 
Year of Publication: 
2022
Series/Report no.: 
Bank of Canada Staff Working Paper No. 2022-12
Publisher: 
Bank of Canada, Ottawa
Abstract: 
We compare the performance of alternative monetary policy frameworks (inflation targeting, average inflation targeting, price level targeting and nominal GDP level targeting) in a tractable HANK model where incomplete financial markets and idiosyncratic earnings risk introduce precautionary savings and consumption inequality. Financial market incompleteness generates an additional source of societal welfare loss due to cyclical fluctuations in inequality on top of those from inflation and output volatility. We find that history-dependent policies are preferred in this framework. However, if central banks put a high weight on curbing inequality, AIT and IT can be preferred over PLT.
Subjects: 
Monetary policy framework
Monetary policy transmission
Monetary policy anduncertainty
Economic models
JEL: 
D31
D52
E21
E31
E52
E58
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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