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Price-Level Targeting - A Real Alternative to Inflation Targeting?

  • Jiri Bohm
  • Jan Filacek
  • Ivana Kubicova
  • Romana Zamazalova

This paper reviews price-level targeting in the light of current theoretical knowledge and past practical experience. We discuss progress in the economic debate on this issue, starting with the traditional arguments discussed in the early 1990s, moving to Svensson’s seminal paper in the late 1990s and ending with the most recent literature from the beginning of the new millennium. We devote special attention to the issues of the zero interest rate bound, time consistency and communication. Practical experience from Sweden in the 1930s and Czechoslovakia in the first few years after WWI is used to illustrate the advantages and disadvantages of price-level targeting. Finally, the similarities of price-level and inflation developments with hypothetical outcomes under price-level targeting are investigated in selected inflation-targeting countries.

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Paper provided by Czech National Bank, Research Department in its series Research and Policy Notes with number 2011/01.

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Date of creation: Oct 2011
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Handle: RePEc:cnb:rpnrpn:2011/01
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