Do Inflation-Targeting Central Banks Implicitly Target the Price Level?
AbstractThis paper reports graphical and statistical evidence that the inflation targeting regimes in Canada and the UK - but not in Australia, New Zealand, or Sweden - actually resemble price-level targeting. In particular, the price level closely tracks the path implied by the inflation target, and the time-series predictions of the "bygones-are-bygones" version of inflation targeting are rejected by the data in favor of those implied by price-level targeting. These results indicate heterogeneity in the actual application of in?ation targeting across countries and, for Canada and the UK, imply that the characterization of in?ation targeting as a policy where shocks are accommodated is at odds with the data. Moreover, up to extent that their current policies already resemble price-level targeting, the welfare gains of replacing in?ation with (explicit) price-level targeting are likely to be small.
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Bibliographic InfoPaper provided by Centre interuniversitaire de recherche en économie quantitative, CIREQ in its series Cahiers de recherche with number 16-2009.
Length: 20 pages
Date of creation: 2009
Date of revision:
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Inflation-targeting; price-level targeting; unit-root tests;
Other versions of this item:
- RUGE-MURCIA, Francisco J., 2009. "Do Inflation-Targeting Central Banks Implicitly Target the Price Level?," Cahiers de recherche 2009-15, Universite de Montreal, Departement de sciences economiques.
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
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