A horse race of alternative monetary policy regimes under bounded rationality

Arbeitspapier

We introduce bounded rationality, along the lines of Gabaix (2020), in a canonical New Keynesian model calibrated to match Canadian macroeconomic data since Canada's adoption of inflation targeting. We use the model to provide a quantitative assessment of the macroeconomic impact of flexible inflation targeting and some alternative monetary policy regimes. These alternative monetary policy regimes are average-inflation targeting, price-level targeting and nominal gross domestic product level targeting. We consider these regimes' performance with and without an effective lower bound constraint. Our results suggest that the performance of history-dependent frameworks is sensitive to departures from rational expectations. The benefits of adopting history-dependent frameworks over flexible inflation targeting gradually diminish with a greater degree of bounded rationality. This finding is in line with laboratory experiments that show flexible inflation targeting remains a robust framework to stabilize macroeconomic fluctuations

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Bank of Canada Staff Discussion Paper ; No. 2022-4

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Macroeconomics: Consumption, Saving, Production, Employment, and Investment: Forecasting and Simulation: Models and Applications ; Monetary Policy ; Central Banks and Their Policies
• Thema: Central bank research ; Economic models ; Monetary policy framework ; Monetary policy transmission

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Wagner, Joel ; Schlanger, Tudor ; Zhang, Yang
• Ereignis: Veröffentlichung
• (wer): Bank of Canada
• (wo): Ottawa
• (wann): 2022

Weitere Informationen

• DOI: doi:10.34989/sdp-2022-4
• Handle: http://hdl.handle.net/10419/266065
• Letzte Aktualisierung: 10.03.2025, 11:41 MEZ