Dear all, we would like to invite you to our next ECON Theory and Policy Seminar talk: Thu, March 3, 3:30pm (online via Zoom) https://tuwien.zoom.us/j/95006905406?pwd=MDVXR1dhdXpwMmNMNHlSTGdUbC9FQT09 Average Inflation Targeting and the Interest Rate Lower Bound Flora Budianto (BIS)<https://www.google.com/url?q=https%3A%2F%2Fsites.google.com%2Fsite%2Fflorabudianto%2Fhome&sa=D&sntz=1&usg=AOvVaw3gqPOE-YrfRgh9bub1d_U6> https://sites.google.com/site/florabudianto/home Specifying the central bank's inflation target in terms of an average inflation rate - rather than a period-by-period inflation rate - increases welfare in a New Keynesian model with an occasionally binding lower bound on nominal interest rates. Under rational expectations, the welfare-maximizing averaging window is infinitely long, which means that optimal average inflation targeting (AIT) is equivalent to price level targeting (PLT). However, AIT with a finite, but sufficiently long, averaging window can attain most of the welfare gain from PLT. Under boundedly-rational expectations, if cognitive limitations are sufficiently strong, the optimal averaging window is finite, and the welfare gain of adopting AIT can be small. Further Events: https://www.econ.tuwien.ac.at/index.html#events Best regards, Julia Hutter for Alexia Fürnkranz-Prskawetz Julia Hutter TU Wien Institute of Statistics and Mathematical Methods in Economics Economics E105-3 Phone: +43-1-58801x10531 E-Mail: julia.hutter@tuwien.ac.at<mailto:julia.hutter@tuwien.ac.at>