Implications for Determinacy with Average Inflation Targeting
9 Pages Posted: 17 May 2022
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Implications for Determinacy with Average Inflation Targeting
Number of pages: 8
Posted: 18 May 2022
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Abstract
We use a standard New Keynesian model to explore implications of backward- and forward looking windows for monetary policy with average inflation targeting and investigate the conditions for determinacy. A unique equilibrium rules out sunspot shocks that can lead to self-fulfilling shocks for inflation expectations. We find limitations for the length of the forward window and demonstrate how this depends on other parameters in the model, including parameters governing monetary policy and expectations formation.
Keywords: E50, E52, E58
Suggested Citation: Suggested Citation
Ahmad, Yamin S. and Murray, James, Implications for Determinacy with Average Inflation Targeting. Available at SSRN: https://ssrn.com/abstract=4111935 or http://dx.doi.org/10.2139/ssrn.4111935
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