Logotipo NIPE



What To Target? Insights from a lab experiment

Guest speaker

Isabelle L. Salle (Bank of Canada, University of Amsterdam and Tinbergen Institute)


Room -1.26 EEG & Online


Start22.12.2021 11:00End22.12.2021 12:00

Type of registration

Online via E-mail

More information

Know more

Event summary

This paper compares alternative monetary policy regimes within a controlled lab environment, where groups of participants are tasked with repeatedly fore- casting inflation in a simple macroeconomic model featuring only the dynamics of interest rates, inflation and inflation expectations. Average-inflation targeting can approximate the price path observed under price-level targeting in the pres- ence of disinflationary shocks and enable subjects to coordinate on simple heuris- tics that reflect the concern of the central bank for past inflation gaps. However, this depends on the exact specification of the policy rule. In particular, if the central bank considers more than two lags, subjects fail to form expectations that are consistent with the monetary policy rule, which results in greater inflation volatility. Reinforcing communication around the target helps somewhat anchor long- run inflation expectations.