Abstract:We derive a best-reply monetary policy when the confidence by price setters on the monetary authority's commitment to price level targeting may be both incomplete and sticky. We find that complete confidence (or full credibility) is not a necessary condition for the achievement of a price level target even when heterogeneity in firms' price level expectations is endogenously time-varying and may emerge as a long-run equilibrium outcome. In fact, in the absence of exogenous perturbations to the dynamic of confi… Show more
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