Monetary policy rules and stability: inflation targeting versus price-level targeting

Charles Carlstrom and Timothy Fuerst

Economic Commentary, 2002, issue Feb

Abstract: Monetary policy rules help central banks exercise the discipline necessary to achieve their long-term goals. The type of rule many banks are turning to these days is inflation targeting, which has several advantages. But because banks base their actions on forecasts of future inflation, following the rule can lead to inflation-rate instability in some cases. A price-level target offers the same benefits as an inflation target but, because actions are based on past inflation, it avoids this vulnerability.

Keywords: Banks and banking, Central; Monetary policy; Inflation (Finance) (search for similar items in EconPapers)
Date: 2002
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