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Price-Level Targeting and Stabilization Policy: A Review

  • Steve Ambler

The author surveys recent articles on the costs and benefits of price-level targeting versus inflation targeting, focusing on the benefits and costs of price-level targeting as a tool for stabilization policy. He reviews papers that examine how price-level targeting affects the short-run trade-off between output and inflation variability by influencing expectations of future inflation. The author looks at the implications of this argument for assigning an objective based on price-level targeting to a central bank that is unable to commit to its future policies. He discusses some recent papers that examine how price-level targeting can help to avoid the zero-bound problem, and papers that examine the incentives created by price-level targeting to change the degree of indexation of private contracts.

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Paper provided by Bank of Canada in its series Discussion Papers with number 07-11.

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Length: 31 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:bca:bocadp:07-11
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