Optimal monetary policy: is price‐level targeting the next step?

A. Patrick Minford and David Peel

Scottish Journal of Political Economy, 2003, vol. 50, issue 5, 650-667

Abstract: We examine whether inflation targeting should be regarded as optimal. Targeting inflation implies (undesirably) that price level variance tends to infinity: we produce some evidence from both a representative agent model and a long‐used forecasting model that, once an endogenous indexation response is allowed for, price level targeting imposes no extra costs of macro variability, indeed gives significant gains.

Date: 2003
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