Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/53947
Authors: 
Cateau, Gino
Kryvtsov, Oleksiy
Shukayev, Malik
Ueberfeldt, Alexander
Year of Publication: 
2009
Series/Report no.: 
Bank of Canada Working Paper 2009,17
Abstract: 
Using the Bank of Canada's main projection and policy-analysis model, ToTEM, this paper measures the welfare gains of switching from inflation targeting to price-level targeting under imperfect credibility. Following the policy change, private agents assign a probability to the event that the policy-maker will revert to inflation-targeting next period. As this probability decreases and imperfect credibility abates, inflation expectations in the economy become consistent with price-level targeting. The paper finds a large welfare gain when imperfect credibility is short-lived. The gain becomes smaller with persisting imperfect credibility, turning to a loss if it lasts more than 13 years.
Subjects: 
Monetary policy framework
Monetary policy implementation
JEL: 
E31
E52
Document Type: 
Working Paper

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