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Inflation Targeting and Price-Level-Path Targeting in the Global Economy Model: Some Open Economy Considerations

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  • Donald Coletti
  • Ren� Lalonde
  • Dirk Muir

Abstract

This paper compares the capability of simple inflation targeting (IT) and price-level-path targeting (PLPT) rules to minimize inflation and output gap variability in a two-country, two-sector version of the Global Economy Model calibrated for Canada and the United States. We find that simple PLPT rules are slightly better than simple IT rules at macroeconomic stabilization and that the presence of terms-of-trade shocks tends to bolster the case for PLPT. Lastly, we demonstrate that the choice of monetary policy framework in the United States does not affect the relative merits of IT vs. PLPT in Canada. IMF Staff Papers (2008) 55, 326–338. doi:10.1057/imfsp.2008.2; published online 8 April 2008

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal IMF Staff Papers.

Volume (Year): 55 (2008)
Issue (Month): 2 (June)
Pages: 326-338

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Handle: RePEc:pal:imfstp:v:55:y:2008:i:2:p:326-338

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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. Eagle, David M., 2012. "Nominal GDP targeting for a speedier economic recovery," MPRA Paper 39821, University Library of Munich, Germany.
  3. Hatcher, Michael C. & Minford, Patrick, 2013. "Stabilization policy, rational expectations and price-level versus inflation targeting: a survey," Cardiff Economics Working Papers E2013/14, Cardiff University, Cardiff Business School, Economics Section.

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