Inflation and Price Level Targeting in a New Keynesian Model

26 Pages Posted: 8 Feb 2003

See all articles by Jagjit S. Chadha

Jagjit S. Chadha

University of St. Andrews - School of Management

Charles Nolan

University of St. Andrews

Abstract

In a New Keynesian macroeconomic model under credible commitment, price level targeting dominates inflation targeting. But with sufficient inflation aversion the inflation-targeting central bank can produce quantitatively similar results to one targeting the price level. The current degree of inflation aversion demonstrated by the Bank of England may be sufficient to reap the benefits of price level targeting.

Suggested Citation

Chadha, Jagjit S. and Nolan, Charles, Inflation and Price Level Targeting in a New Keynesian Model. The Manchester School, Vol. 70, pp. 570-595, 2002. Available at SSRN: https://ssrn.com/abstract=317841

Jagjit S. Chadha (Contact Author)

University of St. Andrews - School of Management ( email )

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Charles Nolan

University of St. Andrews ( email )

North St
Saint Andrews, Fife KY16 9AJ
United Kingdom

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