Abstract: We examine global dynamics under learning in New Keynesian models
wheremonetary policy practices either price-level or nominal GDP targeting
and compare these regimes to inflation targeting. The interest-rate rules are
subject to the zero lower bound. The domain of attraction of the targeted
steady state is proposed as a new robustness criterion for a policy regime.
Robustness of price-level and nominal GDP targeting depends greatly on
whether forward guidance in these regimes is incorporated in private agents’
learning. We also analyze volatility of inflation, output and interest rate
during learning adjustment for the different policy regimes.

Full paper can be found here.