EconPapers    
Economics at your fingertips  
 

Are bygones not bygones? Modeling price-level targeting with an escape clause and lessons from the gold standard

Paul Masson () and Malik Shukayev ()

Journal of Macroeconomics, 2011, vol. 33, issue 2, 162-175

Abstract: Like the gold standard, price-level targeting (PT) involves not letting past deviations of inflation be bygones; both regimes return the price level (or price of gold) to its target. The experience of suspension of the gold standard in World War I and resumption in the 1920s (for some countries at a different parity) is reviewed. It suggests that, in practice, PT might operate with an escape clause that would allow rebasing of the price target in the face of large shocks. Using a calibrated general equilibrium model, we show that such an escape clause can produce multiple equilibria. For some parameterizations, there is a low credibility equilibrium (with high expectation of a reset) associated with high output volatility and frequent resets. These problems reduce, or reverse, the expectational advantage PT has over inflation targeting.

Keywords: Credibility; Monetary; policy; framework (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0164-0704(11)00004-8
Full text for ScienceDirect subscribers only

Related works:
Chapter: Are Bygones Not Bygones? Modeling Price-Level Targeting with an Escape Clause and Lessons from the Gold Standard (2019) Downloads
Working Paper: Are Bygones not Bygones? Modeling Price Level Targeting with an Escape Clause and Lessons from the Gold Standard (2008) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:33:y:2011:i:2:p:162-175

Access Statistics for this article

Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos

More articles in Journal of Macroeconomics from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-11-23
Handle: RePEc:eee:jmacro:v:33:y:2011:i:2:p:162-175