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Price-level targeting and stabilization policy

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Version 2 2024-06-18, 04:36
Version 1 2019-01-18, 14:26
journal contribution
posted on 2024-06-18, 04:36 authored by Aleksander Berentsen, Christopher J Waller
The authors construct a dynamic stochastic general equilibrium model to study optimal monetary stabilization policy. Prices are fully flexible and money is essential for trade. The authors’ main result is that if the central bank pursues a price-level target, it can control inflation expectations and improve welfare by stabilizing short-run shocks to the economy. The optimal policy involves smoothing nominal interest rates that effectively smooths consumption across states.

History

Journal

Federal Reserve Bank of St. Louis Review

Volume

95

Season

Mar/Apr

Pagination

145-163

Location

St. Louis, Mo.

Open access

  • Yes

ISSN

0014-9187

eISSN

2163-4505

Language

English

Publication classification

C1.1 Refereed article in a scholarly journal, C Journal article

Copyright notice

2013, The Federal Reserve Bank of St. Louis

Issue

2

Publisher

Federal Reserve Bank of St Louis