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.
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 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:
Contact details of provider:
Postal: C.P. 6128, Succ. centre-ville, Montréal (PQ) H3C 3J7
Phone: (514) 343-6557
Fax: (514) 343-7221
Web page: http://www.cireq.umontreal.ca
More information through EDIRC
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
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.:
- Serena Ng & Pierre Perron, 2001.
"LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power,"
Econometric Society, vol. 69(6), pages 1519-1554, November.
- Serena Ng & Pierre Perron, 1997. "Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power," Boston College Working Papers in Economics 369, Boston College Department of Economics, revised 01 Sep 2000.
- Woodford, M., 1999.
"Optimal Monetary Policy Inertia.,"
666, Stockholm - International Economic Studies.
- Vestin, David, 2006. "Price-level versus inflation targeting," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1361-1376, October.
- Alexander L. Wolman, 1999.
"Real Implications of the Zero Bound on Nominal Interest Rates,"
Computing in Economics and Finance 1999
1152, Society for Computational Economics.
- Wolman, Alexander L, 2005. "Real Implications of the Zero Bound on Nominal Interest Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(2), pages 273-96, April.
- Alexander L. Wolman, 2003. "Real implications of the zero bound on nominal interest rates," Working Paper 03-15, Federal Reserve Bank of Richmond.
- Clarida, R. & Gali, J. & Gertler, M., 1999.
"The Science of Monetary Policy: A New Keynesian Perspective,"
99-13, C.V. Starr Center for Applied Economics, New York University.
- Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
- Richard Clarida & Jordi Galí & Mark Gertler, 1997. "The science of monetary policy: A new Keynesian perspective," Economics Working Papers 356, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 1999.
- Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," NBER Working Papers 7147, National Bureau of Economic Research, Inc.
- Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers 2139, C.E.P.R. Discussion Papers.
- Laurence Ball & N. Gregory Mankiw & Ricardo Reis, 2003.
"Monetary Policy for Inattentive Economies,"
Harvard Institute of Economic Research Working Papers
1997, Harvard - Institute of Economic Research.
- Laurence Ball & N Gregory Mankiw & Ricardo Reis, 2003. "Monetary Policy for Inattentive Economies," Economics Working Paper Archive 491, The Johns Hopkins University,Department of Economics.
- Laurence Ball & N. Gregory Mankiw & Ricardo Reis, 2003. "Monetary Policy for Inattentive Economies," NBER Working Papers 9491, National Bureau of Economic Research, Inc.
- Woodford, Michael, 1999. "Optimal monetary policy inertia," CFS Working Paper Series 1999/09, Center for Financial Studies (CFS).
- Steinsson, Jon, 2003.
"Optimal monetary policy in an economy with inflation persistence,"
Journal of Monetary Economics,
Elsevier, vol. 50(7), pages 1425-1456, October.
- Jón Steinsson, 2000. "Optimal monetary policy in an economy with inflation persistence," Economics wp11, Department of Economics, Central bank of Iceland.
- Robert J. Shiller & Pierre Perron, 1985.
"Testing the Random Walk Hypothesis: Power versus Frequency of Observation,"
NBER Technical Working Papers
0045, National Bureau of Economic Research, Inc.
- Shiller, Robert J. & Perron, Pierre, 1985. "Testing the random walk hypothesis : Power versus frequency of observation," Economics Letters, Elsevier, vol. 18(4), pages 381-386.
- Pierre Perron & Robert J. Shiller, 1984. "Testing the Random Walk Hypothesis: Power Versus Frequency of Observation," Cowles Foundation Discussion Papers 732, Cowles Foundation for Research in Economics, Yale University.
- 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.
- Perron, P, 1988.
"The Great Crash, The Oil Price Shock And The Unit Root Hypothesis,"
338, Princeton, Department of Economics - Econometric Research Program.
- Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
- Vladimir Klyuev & Heesun Kiem & Ondra Kamenik & Douglas Laxton, 2008. "Why is Canada's Price Level So Predictable?," IMF Working Papers 08/25, International Monetary Fund.
- Graham M. Voss & M. Chaban, 2012. "National and Provincial Inflation in Canada: Experiences under Inflation Targeting," Department Discussion Papers 1201, Department of Economics, University of Victoria.
- Pierre L. Siklos, 2011. "Communication for Multi-Taskers: Perspectives on Dealing with Both Monetary Policy and Financial Stability," Working Paper Series 04_11, The Rimini Centre for Economic Analysis.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sharon BREWER).
If references are entirely missing, you can add them using this form.