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Monetary policy rules and stability: inflation targeting versus price-level targeting

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  • Charles T. Carlstrom
  • Timothy S. Fuerst

Abstract

Monetary policy rules help central banks exercise the discipline necessary to achieve their long-term goals. The type of rule many banks are turning to these days is inflation targeting, which has several advantages. But because banks base their actions on forecasts of future inflation, following the rule can lead to inflation-rate instability in some cases. A price-level target offers the same benefits as an inflation target but, because actions are based on past inflation, it avoids this vulnerability.

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Bibliographic Info

Article provided by Federal Reserve Bank of Cleveland in its journal Economic Commentary.

Volume (Year): (2002)
Issue (Month): Feb ()
Pages:

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Handle: RePEc:fip:fedcec:y:2002:i:feb15

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Keywords: Monetary policy ; Inflation (Finance) ; Banks and banking; Central;

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Cited by:
  1. Hatcher, Michael C., 2011. "Comparing inflation and price-level targeting: A comprehensive review of the literature," Cardiff Economics Working Papers E2011/22, Cardiff University, Cardiff Business School, Economics Section.
  2. Le, Vo Phuong Mai & Minford, Patrick, 2007. "Optimising Indexation Arrangements under Calvo Contracts and their Implications for Monetary Policy," CEPR Discussion Papers 6325, C.E.P.R. Discussion Papers.
  3. Daniel Daianu & Laurian Lungu, 2007. "Inflation Targeting, Between Rhetoric and Reality. The Case of Transition Economies," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 4(1), pages 39-64, June.
  4. Oleksiy Kryvtsov & Malik Shukayev & Alexander Ueberfeldt, 2007. "Optimal Monetary Policy and Price Stability Over the Long-Run," Working Papers 07-26, Bank of Canada.

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