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Price-Level Targeting - A Real Alternative to Inflation Targeting?

Jiri Bohm, Jan Filáček, Ivana Kubicová and Romana Zamazalova

Research and Policy Notes from Czech National Bank

Abstract: This paper reviews price-level targeting in the light of current theoretical knowledge and past practical experience. We discuss progress in the economic debate on this issue, starting with the traditional arguments discussed in the early 1990s, moving to Svensson’s seminal paper in the late 1990s and ending with the most recent literature from the beginning of the new millennium. We devote special attention to the issues of the zero interest rate bound, time consistency and communication. Practical experience from Sweden in the 1930s and Czechoslovakia in the first few years after WWI is used to illustrate the advantages and disadvantages of price-level targeting. Finally, the similarities of price-level and inflation developments with hypothetical outcomes under price-level targeting are investigated in selected inflation-targeting countries.

Keywords: Communication; deflation; price-level targeting; time inconsistency; zero bound. (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 (search for similar items in EconPapers)
Date: 2011-10
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Journal Article: Price-Level Targeting–A Real Alternative to Inflation Targeting? (2012) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:cnb:rpnrpn:2011/01

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