The Effectiveness of Central Bank Forward Guidance Under Inflation and Price-level Targeting

Authors

Stephen J. Cole, Marquette UniversityFollow

Document Type

Article

Language

eng

Publication Date

3-2018

Publisher

Elsevier

Source Publication

Journal of Macroeconomics

Source ISSN

0923-7992

Abstract

This paper examines the effectiveness of central bank forward guidance under inflation and price-level targeting monetary policies. The results show that the beneficial effects of forward guidance increase if a central bank pursues price-level targeting instead of inflation targeting. Output and inflation respond more favorably to forward guidance with price-level targeting than inflation targeting. A monetary policy rule that aggressively reacts to inflation and includes interest rate inertia narrows the performance gap between the two policy regimes. However, forward guidance with price-level targeting is still preferred to forward guidance with inflation targeting after performing multiple robustness checks.

Comments

Accepted version. Journal of Macroeconomics, Vol. 55 (March 2018): 146-161. DOI. © 2018 Elsevier B.V. Used with permission.

Recommended Citation

Cole, Stephen J., "The Effectiveness of Central Bank Forward Guidance Under Inflation and Price-level Targeting" (2018). Economics Faculty Research and Publications. 583.
https://epublications.marquette.edu/econ_fac/583