It is commonly believed that a monetary policy that targets the price level reduces the long-term variability of the price level but only at the cost of increased variability in both inflation and output. This paper shows that this result may not hold so long as increases in the real rate of...

In a sticky-price model where firms finance their production inputs, there is both a lower and an upper bound on the central bank's inflation response necessary to rule out the possibility of self-fulfilling inflation expectations. This paper shows that real wage rigidities decrease this upper...

Since 1991, the Bank of Canada has had an inflation‐targeting (IT) framework established by a joint agreement between the Bank and the Government of Canada. The framework is reviewed every five years as part of the process for renewing the inflation‐control agreement. This discussion paper...

The purpose of this paper is to make a quantitative contribution to the inflation versus price level targeting debate. It considers a policy-maker that can set policy either through an inflation targeting rule or a price level targeting rule to minimize a quadratic loss function using the actual...

This paper studies the determinants of business cycles in small open economies and adds to the discussion about the changing nature of inflation dynamics. We estimate a series of VAR models for a set of six Asian emerging market economies, in which we identify a battery of domestic and global...

Standard New Keynesian (NK) models feature an optimal inflation target well below two percent, limited welfare losses from business cycle fluctuations and long-term monetary neutrality. We develop a NK framework with labour market frictions, endogenous productivity and downward wage rigidity...

This paper uses real-time briefing forecasts prepared for the Federal Open Market Committee (FOMC) to provide estimates of historical changes in the design of U.S. monetary policy and in the implied central-bank target for inflation. Empirical results support a description of policy with an...

Using a daily survey of U.S. households, we study how the Federal Reserve's announcement of its new strategy of average inflation targeting affected households' expectations. Starting with the day of the announcement, there is a very small uptick in the minority of households reporting that they...

This paper studies the effect on monetary policy of a non-homogeneous degree of competition across the (two) members of a monetary union. In particular, we assess the welfare loss brought about by the use of a simple interest rate rule that does not take into account such structural differences....