Can Price-Level Targeting Reduce Exchange Rate Volatility?

Nestor Azcona

Eastern Economic Journal, 2018, vol. 44, issue 3, No 4, 400-436

Abstract: Abstract Previous studies have shown that, under certain conditions, a central bank can achieve a better trade-off between inflation and output volatility by replacing its inflation target with a price-level target. This article studies whether a Taylor rule that targets the price level instead of the inflation rate can reduce nominal and real exchange rate volatility without compromising the goals of inflation and output stability. The results indicate that supply shocks cause less nominal and real exchange rate volatility under price-level targeting. However, in the case of demand shocks the results depend on the persistence of the shocks.

Keywords: monetary policy; price-level targeting; exchange rates; E52; F41 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1057/s41302-017-0091-4 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
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:pal:easeco:v:44:y:2018:i:3:d:10.1057_s41302-017-0091-4

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/41302

DOI: 10.1057/s41302-017-0091-4

Access Statistics for this article

Eastern Economic Journal is currently edited by Allan Zebedee and Cynthia Bansak

More articles in Eastern Economic Journal from Palgrave Macmillan, Eastern Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().