Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/273730 
Year of Publication: 
2023
Series/Report no.: 
Deutsche Bundesbank Discussion Paper No. 18/2023
Publisher: 
Deutsche Bundesbank, Frankfurt a. M.
Abstract: 
We study the welfare performance of various simple monetary policy rules under bounded rationality (BR) along the lines of Gabaix (2020) in a New Keynesian model with sticky wages and an effective lower bound (ELB) on interest rates. Policy strategies with a strong history dependence lose their advantage over inflation targeting in mitigating a demand-driven recessions when interest rates are constrained by the ELB. For supply shocks, inflation t argeting o utperforms h istory-dependent r ules f or a s ufficiently high degree of BR. An exponential average inflation targeting rule, which features a variable degree of history dependence, performs remarkably well, independent of the degree of BR.
Subjects: 
Bounded Rationality
Sticky Wages
Monetary Policy Strategies
Zero LowerBound
JEL: 
E20
E24
E31
E32
E52
ISBN: 
978-3-95729-949-9
Document Type: 
Working Paper

Files in This Item:
File
Size





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