Price-Level Targeting: an omelette that requires breaking some Inflation-Targeting eggs?
AbstractThis manuscript can be divided into two main parts. The first one, using a simple example by Minford (2004) and Hatcher (2011), gives the reader a basic introduction to understand the comparison between two monetary-policy regimes: Inflation Targeting (IT) and Price-Level Targeting (PLT). The second part, using a model with a New Keynesian Phillips curve and a loss function (both of which incorporate partial indexation to lagged inflation), finds that for standard values of underlying parameters (i) the social loss associated to macroeconomic volatility may decrease about 26% by switching from IT to PLT and (ii) only when the initial level of indexation to lagged inflation is higher than 60% then it is better not to switch to PLT.
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Bibliographic InfoPaper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 783.
Date of creation: Sep 2013
Date of revision:
Inflation targeting; price-level targeting; indexation; macroeconomic stability Classification JEL: E52; E58;
Other versions of this item:
- Julian A. Parra-Polania & Luisa F. Acuña-Roa, 2013. "Price-Level Targeting: an omelette that requires breaking some Inflation-Targeting eggs?," BORRADORES DE ECONOMIA 010984, BANCO DE LA REPÚBLICA.
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-10-02 (All new papers)
- NEP-MAC-2013-10-02 (Macroeconomics)
- NEP-MON-2013-10-02 (Monetary Economics)
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