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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
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)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gaspar, Vitor & Smets, Frank & Vestin, David, 2010. "Inflation Expectations, Adaptive Learning and Optimal Monetary Policy," Handbook of Monetary Economics, Elsevier, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 19, pages 1055-1095 Elsevier.
- Svensson, Lars E O, 1999.
"Price-Level Targeting versus Inflation Targeting: A Free Lunch?,"
Journal of Money, Credit and Banking, Blackwell Publishing,
Blackwell Publishing, vol. 31(3), pages 277-95, August.
- Svensson, Lars E O, 1996. "Price-level Targeting versus Inflation Targeting: A Free Lunch?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1510, C.E.P.R. Discussion Papers.
- Nessén, Marianne & Vestin, David, 2000.
"Average Inflation Targeting,"
Working Paper Series
119, Sveriges Riksbank (Central Bank of Sweden).
- Nessen, Marianne & Vestin, David, 2005. "Average Inflation Targeting," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 37(5), pages 837-63, October.
- Jiri Bohm & Jan Filacek & Ivana Kubicova & Romana Zamazalova, 2011.
"Price-Level Targeting - A Real Alternative to Inflation Targeting?,"
Research and Policy Notes, Czech National Bank, Research Department
2011/01, Czech National Bank, Research Department.
- Jiri Bohm & Jan Filacek, 2012. "Price-Level Targeting–A Real Alternative to Inflation Targeting?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, Charles University Prague, Faculty of Social Sciences, vol. 62(1), pages 2-26, February.
- Steve Ambler, 2009. "Price-Level Targeting and Stabilization Policy: A Review," Bank of Canada Review, Bank of Canada, Bank of Canada, vol. 2009(Spring), pages 21-31.
- Gill Hammond, 2012. "State of the art of inflation targeting," Handbooks, Centre for Central Banking Studies, Bank of England, Centre for Central Banking Studies, Bank of England, edition 4, number 29.
- 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.
- Sahuc, Jean-Guillaume, 2006.
"Partial indexation, trend inflation, and the hybrid Phillips curve,"
Economics Letters, Elsevier,
Elsevier, vol. 90(1), pages 42-50, January.
- Sahuc, J-G., 2004. "Partial Indexation, Trend Inflation, and the Hybrid Phillips Curve," Working papers, Banque de France 118, Banque de France.
- Christopher Ragan, 2011. "The Roads Not Taken: Why the Bank of Canada Stayed With Inflation Targeting," e-briefs, C.D. Howe Institute 125, C.D. Howe Institute.
- Carl E. Walsh, 2011. "The Future of Inflation Targeting," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 87(s1), pages 23-36, 09.
- Vestin, David, 2006. "Price-level versus inflation targeting," Journal of Monetary Economics, Elsevier, Elsevier, vol. 53(7), pages 1361-1376, October.
- George A. Kahn, 2009. "Beyond inflation targeting: should central banks target the price level?," Economic Review, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, issue Q III, pages 35-64.
- Patrick Minford, 2004. "The A W Phillips memorial lecture to the New Zealand Association of Economists: Monetary Policy – should it move onto a price level target?," Macroeconomics, EconWPA 0409020, EconWPA.
- Gauti B. Eggertsson & Michael Woodford, 2003. "The Zero Bound on Interest Rates and Optimal Monetary Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 139-235.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Camilo Millán).
If references are entirely missing, you can add them using this form.