Inflation versus Price-Level Targeting: Bayesian Estimation of a Small Open DSGE Model for Switzerland (BestMasters) - Softcover

Heim, Lukas

Softcover

ISBN 10: 3658082275 ISBN 13: 9783658082277

Publisher: Springer Gabler, 2014

Synopsis

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.

About this title

About the Author

Lukas Heim obtained his MSc in International and Monetary Economics at the University of Bern. His research interests include macroeconomics, monetary economics and econometrics.

From the Back Cover

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.

Contents

• Monetary Policy in Switzerland
• Comparison of Inflation and Price-Level Targeting
• Bayesian Estimation of a Small Open DSGE Model

Target Groups

Researchers and students in the field of economy with an interest in monetary policy

The Author

Lukas Heim obtained his MSc in International and Monetary Economics at the University of Bern. His research interests include macroeconomics,monetary economics and econometrics.

Edition details

• Publisher: Springer Gabler
• Publication date: 2014
• ISBN 10: 3658082275
• ISBN 13: 9783658082277
• Binding: Paperback
• Language: English
• Number of pages: 81