IDEAS home Printed from https://ideas.repec.org/p/hhs/iiessp/0614.html
   My bibliography  Save this paper

Price Level Targeting vs. Inflation Targeting: A Free Lunch?

Author

Listed:
  • Svensson, Lars E.O.

    (Institute for International Economic Studies, Stockholm University)

Abstract

Price level targeting (without base drift) and inflation targeting (with base drift) are compared under commitment and discretion, with persistence in unemployment. Price level targeting is often said to imply more short-run inflation variability and thereby more employment variability than inflation targeting. Counter to this conventional wisdom, under discretion a price level target results in lower inflation variability than an inflation target (if unemployment is at least moderately persistent). A price level target also eliminates the inflation bias under discretion and, as is well known, reduces long-term price variability. Society may be better off assigning a price level target to the central bank even if its preferences correspond to inflation targeting. A price level target thus appears to have more advantages than commonly aknowledged.

Suggested Citation

  • Svensson, Lars E.O., 1997. "Price Level Targeting vs. Inflation Targeting: A Free Lunch?," Seminar Papers 614, Stockholm University, Institute for International Economic Studies.
  • Handle: RePEc:hhs:iiessp:0614
    as

    Download full text from publisher

    File URL: http://su.diva-portal.org/smash/get/diva2:343139/FULLTEXT01
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Sofronis K. Clerides & Saul Lach & James R. Tybout, 1998. "Is Learning by Exporting Important? Micro-Dynamic Evidence from Colombia, Mexico, and Morocco," The Quarterly Journal of Economics, Oxford University Press, vol. 113(3), pages 903-947.
    2. Svensson, Lars E O, 1999. "Price-Level Targeting versus Inflation Targeting: A Free Lunch?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 277-295, August.
    3. Armen Hovakimian & Edward J. Kane, 1996. "Risk-Shifting by Federally Insured Commercial Banks," NBER Working Papers 5711, National Bureau of Economic Research, Inc.
    4. Michael Bordo & Anna Schwartz, 1996. "Why clashes between internal and external stability goals end in currency crises, 1797–1994," Open Economies Review, Springer, vol. 7(1), pages 437-468, March.
    5. Kevin A. Hassett, 1999. "Tax Policy and Investment," Books, American Enterprise Institute, number 53049, September.
    6. R. Glenn Hubbard & Jonathan S. Skinner, 1996. "Assessing the Effectiveness of Saving Incentives," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 73-90, Fall.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:ilo:ilowps:366690 is not listed on IDEAS
    2. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, vol. 93(4), pages 1268-1290, September.
    3. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2018. "Global Firms," Journal of Economic Literature, American Economic Association, vol. 56(2), pages 565-619, June.
    4. Richard Harris & John Moffat, 2011. "R&D, Innovation and Exporting," SERC Discussion Papers 0073, Centre for Economic Performance, LSE.
    5. Jan De Loecker & Jozef Konings, 2003. "Creative Destruction and Productivity Growth in an Emerging Economy Evidence from Slovenian Manufacturing," LICOS Discussion Papers 13803, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
    6. Sébastien Jean, 2002. "International Trade and Firms' Heterogeneity under Monopolistic Competition," Open Economies Review, Springer, vol. 13(3), pages 291-311, July.
    7. Annette Alstadsæter & Ann-Sofie Kolm & Birthe Larsen, 2005. "Tax Effects, Search Unemployment, and the Choice of Educational Type," CESifo Working Paper Series 1622, CESifo.
    8. Amit Gandhi & Salvador Navarro & David Rivers, 2011. "On the Identification of Production Functions: How Heterogeneous is Productivity?," University of Western Ontario, Centre for Human Capital and Productivity (CHCP) Working Papers 20119, University of Western Ontario, Centre for Human Capital and Productivity (CHCP).
    9. Ben Jelili, Riadh & Goaied, Mohamed, 2009. "Entry, Exit, and Productivity in Tunisian Manufacturing Industries," MPRA Paper 52222, University Library of Munich, Germany, revised 2008.
    10. Francesco Serti & Chiara Tomasi, 2008. "Self-Selection and Post-Entry Effects of Exports: Evidence from Italian Manufacturing Firms," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 144(4), pages 660-694, December.
    11. Chakraborty, Debashis & Mukherjee, Jaydeep & Lee, Jaewook, 2016. "Do FDI Inflows influence Merchandise Exports? Causality Analysis on India over 1991-2016," MPRA Paper 74851, University Library of Munich, Germany.
    12. Qun Bao & Ninghua Ye & Ligang Song, 2016. "Congested Export Spillover in China," Review of Development Economics, Wiley Blackwell, vol. 20(1), pages 272-282, February.
    13. Elmendorf, Douglas W. & Gregory Mankiw, N., 1999. "Government debt," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 25, pages 1615-1669, Elsevier.
    14. Ramona Dumitriu & Razvan Stefanescu, 2015. "The Relationship Between Romanian Exports And Economic Growth After The Adhesion To European Union," Risk in Contemporary Economy, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, pages 17-26.
    15. Gabriel J. Felbermayr & Mario Larch & Wolfgang Lechthaler, 2013. "Unemployment in an Interdependent World," American Economic Journal: Economic Policy, American Economic Association, vol. 5(1), pages 262-301, February.
    16. Dutt, Pushan & Mihov, Ilian & Van Zandt, Timothy, 2013. "The effect of WTO on the extensive and the intensive margins of trade," Journal of International Economics, Elsevier, vol. 91(2), pages 204-219.
    17. bouoiyour, jamal, 2006. "Productivité du travail, capital humain et écart technologique dans les industries manufacturières marocaines [Labor productivity, human capital and technology gap in manufacturing Moroccan]," MPRA Paper 37035, University Library of Munich, Germany.
    18. Marianne Matthee & Neil Rankin & Tasha Naughtin & Carli Bezuidenhout, 2016. "The South African manufacturing exporter story," WIDER Working Paper Series wp-2016-38, World Institute for Development Economic Research (UNU-WIDER).
    19. William M. Gentry & R. Glenn Hubbard, 2000. "Entrepreneurship and Household Saving," NBER Working Papers 7894, National Bureau of Economic Research, Inc.
    20. H. T. Tran & E. Santarelli, 2013. "Determinants and Effects of Innovative Activities in Vietnam. A Firm-level Analysis," Working Papers wp909, Dipartimento Scienze Economiche, Universita' di Bologna.
    21. Anders Akerman & Rikard Forslid, 2009. "Firm Heterogeneity and Country Size Dependent Market Entry Costs," Global COE Hi-Stat Discussion Paper Series gd09-056, Institute of Economic Research, Hitotsubashi University.

    More about this item

    Keywords

    Price stability; inflation targets;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:iiessp:0614. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Hanna Christiansson (email available below). General contact details of provider: https://edirc.repec.org/data/iiesuse.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.