Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/307783 
Year of Publication: 
2023
Series/Report no.: 
Helsinki GSE Discussion Papers No. 2
Publisher: 
Helsinki Graduate School of Economics, Helsinki
Abstract: 
This paper considers 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 may not be robustly stable under learning if the length of the averaging window is not public knowledge. Near the low steady state with interest rates at the zero lower bound, AIT does not necessarily outperform standard inflation targeting policy. Policymakers can improve outcomes under AIT by communicating the averaging window, or using an asymmetric rule that responds more aggressively to below-target average inflation.
Subjects: 
Adaptive Learning
Inflation Targeting
Zero Interest Rate Lower Bound
JEL: 
E31
E52
E58
ISBN: 
978-952-7543-01-6
Document Type: 
Working Paper

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