This post is aimed at economists who know more about formal monetary models than I do. I am interested in why so many economists seem to favor inflation targeting, whereas price level targeting seems preferable to me. I am especially interested in whether the models used to compare these two policy regimes incorporate pertinent facts about the real world.
Models often contain “shocks”, which temporarily throw the economy off course. One question I have is:
1. Does the size of shocks in these models depend on the type of monetary regime?