Price-Level Targeting and Stabilization Policy: A Review
Steven Ambler (ambler.steven@uqam.ca)
Bank of Canada Review, 2009, vol. 2009, issue Spring, 21-31
Abstract:
This article reviews arguments in the literature for and against price-level targeting, focusing on its costs and benefits compared with inflation targeting. Benefits of price-level targeting include the effect on forward-looking inflation expectations; the ability to substitute for commitment by a central bank to its future policies; lessening forecast errors; better economic performance in response to real shocks because of lower wage indexation; and a reduction in the problem of the zero lower bound on nominal interest rates. Strict price-level targeting is not appropriate when inflation expectations are not fully forward-looking, and targeting the overall price level may be harmful if there are volatile movements in some of its components.
Date: 2009
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Working Paper: Price-Level Targeting and Stabilization Policy: A Review (2007) 
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bcarev:v:2009:y:2009:i:spring09:p:21-31
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