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Is there a Case for Price-level Targeting?

  • Boris Cournède

    (OECD)

  • Diego Moccero

    (OECD)

There is a case, but there are also counter-arguments. With sufficient forward-looking behaviour among firms and households, price-level targeting can act as a powerful built-in stabiliser through automatic shifts in inflation expectations. This stabilisation mechanism reduces the need for large shifts in policy rates, alleviating the risk of hitting the zero lower bound of nominal interest rates and falling into a liquidity trap. Furthermore, credible price-level targeting can support capital accumulation by protecting the long-run purchasing power of money and reducing the inflation risk premium embedded in actual long-term real interest rates. However, price-level targeting can imply welfare-reducing policy-induced output volatility in situations where the degree of forward-looking behaviour is very low. The self-regulating capacity of price-level targeting can be undermined if central banks are not fully credible. Besides, aggressive inflation targeting can replicate some of (but not all) the benefits of price-level targeting. On balance, the case for adopting price-level targeting is not clear-cut, all the more so since transition costs are likely to be significant. Y a-t-il beaucoup à dire en faveur du ciblage du niveau des prix ? Oui, mais il y a aussi de sérieux contre-arguments. Si une part suffisante des entreprises et des ménages présente un comportement tourné vers l’avenir, le ciblage du niveau des prix peut fonctionner comme un puissant outil de stabilisation autonome grâce aux ajustements automatiques des anticipations des inflations. Ce mécanisme limite le besoin d’opérer de larges mouvements des taux directeurs, ce qui réduit le risque de heurter la borne zéro sur les taux d’intérêt et de tomber dans une trappe à liquidités. Qui plus est, grâce à la manière dont elle protège le pouvoir d’achat de la monnaie, une politique crédible de ciblage du niveau des prix peut encourager l’accumulation de capital en réduisant la prime contre le risque d’inflation qui est incorporée aux taux d’intérêts réels effectifs. Néanmoins, le ciblage du niveau des prix peut entraîner une volatilité de l’activité préjudiciable au bien-être social si la part des ménages et des entreprises qui sont tournés vers l’avenir est très faible. La capacité de stabilisation automatique d’un régime de ciblage du niveau des prix peut aussi être moindrie si la banque centrale manque de crédibilité. Par ailleurs, une stratégie de ciblage agressif du taux d’inflation peut reproduire une partie (mais non pas l’ensemble) des avantages du ciblage du niveau des prix. Tout bien pesé, les arguments en faveur du ciblage du niveau des prix ne justifient pas de manière nette un changement de stratégie monétaire, d’autant plus que les coûts de transition risquent d’être élevés.

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File URL: http://dx.doi.org/10.1787/221824208526
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Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 721.

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Date of creation: 24 Aug 2009
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Handle: RePEc:oec:ecoaaa:721-en
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