Price-Level Targeting: an omelette that requires breaking some Inflation-Targeting eggs?

Luisa Acuña Roa and Julián Parra-Polanía

Borradores de Economia from Banco de la Republica de Colombia

Abstract: This manuscript can be divided into two main parts. The first one, using a simple example by Minford (2004) and Hatcher (2011), gives the reader a basic introduction to understand the comparison between two monetary-policy regimes: Inflation Targeting (IT) and Price-Level Targeting (PLT). The second part, using a model with a New Keynesian Phillips curve and a loss function (both of which incorporate partial indexation to lagged inflation), finds that for standard values of underlying parameters (i) the social loss associated to macroeconomic volatility may decrease about 26% by switching from IT to PLT and (ii) only when the initial level of indexation to lagged inflation is higher than 60% then it is better not to switch to PLT.

Keywords: Inflation targeting; price-level targeting; indexation; macroeconomic stability (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Pages: 28
Date: 2013-09
New Economics Papers: this item is included in nep-mac and nep-mon
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https://doi.org/10.32468/be.783 (application/pdf)

Related works:
Working Paper: Price-Level Targeting: an omelette that requires breaking some Inflation-Targeting eggs? (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:bdr:borrec:783

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