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Price-Level Targeting And Stabilisation Policy: A Survey

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  • Steve Ambler

Abstract

This paper surveys recent articles on the costs and benefits of price-level targeting, focusing its use as a tool for stabilisation policy. It discusses how price-level targeting can affect the short-run trade-off between output and inflation variability by influencing inflation expectations. It reviews how assigning an explicit price-level target to a central bank that is unable to commit to its future policies can improve economic performance. It surveys other potential benefits and costs. Among the costs, it underlines the importance of perfectly rational expectations for the optimality of price-level targeting, and an exacerbation of the time inconsistency problem. Copyright © 2009 Blackwell Publishing Ltd.

Suggested Citation

  • Steve Ambler, 2009. "Price-Level Targeting And Stabilisation Policy: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 23(5), pages 974-997, December.
  • Handle: RePEc:bla:jecsur:v:23:y:2009:i:5:p:974-997
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    Citations

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    Cited by:

    1. repec:eee:jmacro:v:54:y:2017:i:pa:p:42-58 is not listed on IDEAS
    2. Michael, Hatcher, 2013. "Aggregate and welfare effects of long run inflation risk under inflation and price-level targeting," SIRE Discussion Papers 2013-19, Scottish Institute for Research in Economics (SIRE).
    3. Belongia, Michael T. & Ireland, Peter N., 2017. "Circumventing the zero lower bound with monetary policy rules based on money," Journal of Macroeconomics, Elsevier, vol. 54(PA), pages 42-58.
    4. Mele, Antonio & Molnar, Krisztina & Santoro, Sergio, 2014. "On the perils of stabilizing prices when agents are learning," Discussion Paper Series in Economics 1/2015, Norwegian School of Economics, Department of Economics.
    5. Iulian Vasile Popescu, 2012. "Price-Level Targeting – A Viable Alternative To Inflation Targeting?," CES Working Papers, Centre for European Studies, Alexandru Ioan Cuza University, vol. 4(4), pages 809-823, December.
    6. Gerberding, Christina & Gerke, Rafael & Hammermann, Felix, 2012. "Price-level targeting when there is price-level drift," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 757-768.
    7. Rodrigo Vergara, 2010. "Monetary Policy after the Crisis: Some Issues Regarding Targets and Instruments," Economic Policy Papers Central Bank of Chile 38, Central Bank of Chile.
    8. Boris Cournède & Diego Moccero, 2009. "Is there a Case for Price-level Targeting?," OECD Economics Department Working Papers 721, OECD Publishing.
    9. Hatcher, Michael C., 2011. "Inflation versus price-level targeting and the zero lower bound: Stochastic simulations from the Smets-Wouters US model," Cardiff Economics Working Papers E2011/24, Cardiff University, Cardiff Business School, Economics Section.
    10. Hatcher, Michael, 2014. "Indexed versus nominal government debt under inflation and price-level targeting," Journal of Economic Dynamics and Control, Elsevier, vol. 45(C), pages 126-145.
    11. 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, vol. 62(1), pages 2-26, February.
    12. repec:jes:wpaper:y:2012:v:4:p:809-823 is not listed on IDEAS
    13. Gerberding, Christina & Gerke, Rafael & Hammermann, Felix, 2010. "Price-level targeting when there is price-level drift," Discussion Paper Series 1: Economic Studies 2010,23, Deutsche Bundesbank.
    14. Honkapohja, Seppo & Kaushik, Mitra, 2018. "Price level targeting with evolving credibility," Research Discussion Papers 5/2018, Bank of Finland.
    15. 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.
    16. Sofía Bauducco & Rodrigo Caputo, 2010. "Price Level Targeting and Inflation Targeting: a Review," Working Papers Central Bank of Chile 601, Central Bank of Chile.
    17. Pierre-Richard Agénor & Luiz A. Pereira da Silva, 2013. "Inflation Targeting and Financial Stability: A Perspective from the Developing World," Working Papers Series 324, Central Bank of Brazil, Research Department.
    18. Steven Ambler, 2014. "Price-Level Targeting: A Post-Mortem?," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 400, February.
    19. Sofía Bauducco B. & Rodrigo Caputo G, 2011. "Metas de Nivel de Precios y Metas de Inflación: Una Revisión de la Literatura," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 14(1), pages 55-67, April.
    20. Michael Hatcher & Patrick Minford, 2016. "Stabilisation Policy, Rational Expectations And Price-Level Versus Inflation Targeting: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 30(2), pages 327-355, April.
    21. Hatcher, Michael & Minford, Patrick, 2014. "Stabilization policy, rational expectations and price-level versus infl‡ation targeting: a survey," CEPR Discussion Papers 9820, C.E.P.R. Discussion Papers.
    22. repec:cup:macdyn:v:22:y:2018:i:05:p:1345-1369_00 is not listed on IDEAS
    23. McKnight, Stephen, 2018. "Investment And Forward-Looking Monetary Policy: A Wicksellian Solution To The Problem Of Indeterminacy," Macroeconomic Dynamics, Cambridge University Press, vol. 22(05), pages 1345-1369, July.

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