As part of the Brown Bag Lunch series, the International Economics Department at the Graduate Institute is pleased to invite you to a public talk given by Chao Shen, PhD Student in Development Economics. He will present his research work titled:
Can a Shifting Inflation Target Help at the Zero Lower Bound?
Abstract: This paper proposes a short-run inflation target rule to stimulate the economy when the nominal interest rate is bounded and compares the rule with the price-level targeting. This inflation target rule is designed to respond to the gap between the desired policy rate and the actual policy rate. With a medium-scale New Keynesian model, the paper finds that this inflation target rule is a desirable policy framework in facing the ZLB. The paper also finds that the price-level targeting performs poorly if a supply shock drives the ZLB. In contrast, the inflation target rule's efficiency is consistent with both supply shock-driven and demand shock-driven ZLB. These findings contribute to the current discussion on reforming the inflation targeting system and shed light on the future monetary policy design to mitigate the severity of ZLB.