Journal Article
Price-level targeting and stabilization policy
Abstract: 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.
Keywords: Monetary policy; Inflation (Finance);
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Bibliographic Information
Provider: Federal Reserve Bank of St. Louis
Part of Series: Review
Publication Date: 2013
Issue: Mar
Pages: 145-164