Inflation-Targeting, Price-Path Targeting and Indeterminacy
FRB of St. Louis Working Paper No. 2004-007B
12 Pages Posted: 29 Jul 2005
Date Written: December 2004
Abstract
In this paper, we examine the areas of indeterminacy in a flexible price RBC model with shopping time role for money and a central bank that uses an interest rate rule to target inflation and/or the price level. We present analytical results showing that, although inflation targeting often results in real indeterminacy, a price level target generally delivers a unique equilibrium for a relevant range of policy parameters.
Keywords: Inflation targeting, price-path targeting, indeterminacy
JEL Classification: C62, E52
Suggested Citation: Suggested Citation
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