Are Speed Limit Policies Robust?

James Yetman
2003 Social Science Research Network  
Both price level targeting and speed limit policies have been suggested as alternatives to inflation targeting that may confer benefits when a central bank operates under discretion, even if society's loss function is specified in terms of inflation (instead of price level) volatility. Here we show that price level targeting dominates a speed limit policy under perfect credibility and rational expectations. However, a speed limit policy is more robust than a price level target. Even for small
more » ... viations from either rational expectations or perfect credibility, a speed limit policy dominates a price level target. JEL code: E52
doi:10.2139/ssrn.464040 fatcat:3lvcsqqswnefxagnxmzq5fmt3q