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  • Open Daily: 10am - 10pm
    Alley-side Pickup: 10am - 7pm

    3038 Hennepin Ave Minneapolis, MN
    612-822-4611

Open Daily: 10am - 10pm | Alley-side Pickup: 10am - 7pm
3038 Hennepin Ave Minneapolis, MN
612-822-4611
Inflation Versus Price-Level Targeting: Bayesian Estimation of a Small Open Dsge Model for Switzerland

Inflation Versus Price-Level Targeting: Bayesian Estimation of a Small Open Dsge Model for Switzerland

Heim, Lukas

Paperback

Series: Bestmasters

EconomicsGeneral Political Science

ISBN10: 3658082275
ISBN13: 9783658082277
Publisher: Springer Gabler
Published: Dec 1 2014
Pages: 69
Weight: 0.27
Height: 0.20 Width: 5.83 Depth: 8.27
Language: English
Lukas Heim evaluates the performance of a price-level targeting rule compared to that of a standard inflation targeting rule. The comparison is based on a medium-scale DSGE model which has been estimated based on state-of-the-art Bayesian methods. The model for the Swiss economy is an expanded version of the framework proposed by Galì and Monacelli (2005) as well as Monacelli (2005). It is enriched with habit formation in consumption, price indexation, labor market imperfections, and several additional structural disturbances. The results show that - exactly as expected - the volatility of inflation is quite significantly lower under the price-level targeting regime, whereas the volatility of the output gap is markedly higher conditional on either productivity or preference shocks. Therefore, the introduction of a price-level targeting regime would likely produce an increase in the volatility of real economic activity conditional on both supply-side and demand-side shocks. Since inflation and output are targeted simultaneously, none of the two policies is strictly dominant.

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