00000nam 2200000za 4500 9.867625 CaOODSP 20221107162350 cr ||||||||||| 190125s2018 onc #o f|0| 0 eng d CaOODSP eng eng fre n-cn--- FB3-5/2018-61E-PDF Cateau, Gino. Limited commitment, endogenous credibility and the challenges of price-level targeting [electronic resource] / by Gino Cateau and Malik Shukayev. [Ottawa] : Bank of Canada, 2018. ii, 24 p. Bank of Canada staff working paper, 1701-9397 ; 2018-61 "December 2018." Includes bibliographic references. "This paper studies the cost of limited commitment when a central bank has the discretion to adjust policy whenever the costs of honoring its past commitments become high. Specifically, we consider a central bank that seeks to implement optimal policy in a New Keynesian model by committing to a price-level target path. However, the central bank retains the flexibility to reset the target path if the cost of adhering to it exceeds a social tolerance threshold. We find that endowing the central bank with such discretion undermines the credibility of the price-level target and weakens its effectiveness to stabilize the economy through expectations. The endogenous nature of credibility also brings novel results relative to models with exogenous timing of target resets. A much higher degree of credibility is needed to realize the stabilization benefits of commitment. Multiple equilibria also emerge, including a low credibility equilibrium with frequent target resets and high volatility"--Abstract. Includes abstract in French. gccst Monetary policy gccst Central banks Shukayev, Malik. Bank of Canada. Staff working paper (Bank of Canada) 1701-9397 ; 2018-61. (CaOODSP)9.806221 PDF 1.07 MB https://publications.gc.ca/collections/collection_2019/banque-bank-canada/FB3-5-2018-61-eng.pdf