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Yamin Ahmad and James Murray
''Implications for determinacy with average inflation targeting''
( 2023, Vol. 43 No.1 )
We use a standard New Keynesian model to explore implications of backward- and forward-looking windows for monetary policy with average inflation targeting and investigate the conditions for determinacy. A unique equilibrium rules out sunspot shocks that can lead to self-fulfilling shocks for inflation expectations. We find limitations for the length of the forward window and demonstrate how this depends on other parameters in the model, including parameters governing monetary policy and expectations formation.
Keywords: Average Inflation Targeting, Indeterminacy, Monetary Policy, Policy Window
JEL: E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit: General
E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General
Manuscript Received : Jul 22 2022 Manuscript Accepted : Mar 30 2023

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