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Price-level Targeting versus Inflation Targeting in a Forward-looking Model

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  • Vestin, David

    () (Institute for International Economic Studies)

Abstract

This paper examines a price-level target in a model with a forward-looking Calvo-Taylor Phillips curve. Contrary to conventional wisdom, it is found that price-level targeting leads to a better trade-off between inflation and output-gap variability than inflation targeting, when the central bank acts under discretion. In some cases, price-level targeting under dircretion results in the same equilibrium as inflation targeting under commitment.

Suggested Citation

  • Vestin, David, 2000. "Price-level Targeting versus Inflation Targeting in a Forward-looking Model," Working Paper Series 106, Sveriges Riksbank (Central Bank of Sweden).
  • Handle: RePEc:hhs:rbnkwp:0106
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    File URL: http://www.riksbank.com/upload/4086/WP_106.pdf
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    References listed on IDEAS

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    1. Jonas D. M. Fisher, 2002. "Technology shocks matter," Working Paper Series WP-02-14, Federal Reserve Bank of Chicago.
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    4. Jordi Gali, 1999. "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations?," American Economic Review, American Economic Association, vol. 89(1), pages 249-271, March.
    5. Hairault, Jean-Olivier & Langot, Francois & Portier, Franck, 1997. "Time to implement and aggregate fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 22(1), pages 109-121, November.
    6. Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2004. "The Response of Hours to a Technology Shock: Evidence Based on Direct Measures of Technology," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 381-395, 04/05.
    7. Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2003. "What Happens After a Technology Shock?," NBER Working Papers 9819, National Bureau of Economic Research, Inc.
    8. Rotemberg, Julio J & Woodford, Michael, 1996. "Real-Business-Cycle Models and the Forecastable Movements in Output, Hours, and Consumption," American Economic Review, American Economic Association, vol. 86(1), pages 71-89, March.
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    11. Hansen, Bruce E., 1995. "Rethinking the Univariate Approach to Unit Root Testing: Using Covariates to Increase Power," Econometric Theory, Cambridge University Press, vol. 11(05), pages 1148-1171, October.
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    13. repec:cup:etheor:v:11:y:1995:i:5:p:1148-71 is not listed on IDEAS
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    More about this item

    Keywords

    Monetary policy; Price-level targeting; Inflation targeting;

    JEL classification:

    • 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

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