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Price-Level Targeting and Stabilization Policy: A Review

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  • Steve Ambler
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    Abstract

    The author surveys recent articles on the costs and benefits of price-level targeting versus inflation targeting, focusing on the benefits and costs of price-level targeting as a tool for stabilization policy. He reviews papers that examine how price-level targeting affects the short-run trade-off between output and inflation variability by influencing expectations of future inflation. The author looks at the implications of this argument for assigning an objective based on price-level targeting to a central bank that is unable to commit to its future policies. He discusses some recent papers that examine how price-level targeting can help to avoid the zero-bound problem, and papers that examine the incentives created by price-level targeting to change the degree of indexation of private contracts.

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    File URL: http://www.bankofcanada.ca/en/res/dp/2007/dp07-11.pdf
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    Bibliographic Info

    Paper provided by Bank of Canada in its series Discussion Papers with number 07-11.

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    Length: 31 pages
    Date of creation: 2007
    Date of revision:
    Handle: RePEc:bca:bocadp:07-11

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    Keywords: Monetary policy framework;

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    Cited by:
    1. Césaire A. Meh & José-Victor Rios-Rull & Yaz Terajima, 2008. "Aggregate and Welfare Effects of Redistribution of Wealth Under Inflation and Price-Level Targeting," Working Papers, Bank of Canada 08-31, Bank of Canada.
    2. Jean Boivin, 2009. "Getting it Right When You Might Be Wrong: The Choice Between Price-Level and Inflation Targeting," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 297, September.

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