Do Inflation-Targeting Central Banks Implicitly Target the Price Level?

Francisco Ruge-Murcia

Cahiers de recherche from Universite de Montreal, Departement de sciences economiques

Abstract: This paper reports graphical and statistical evidence that the inflation targeting regimes in Canada and the UK - but not in Australia, New Zealand, or Sweden - actually resemble price-level targeting. In particular, the price level closely tracks the path implied by the inflation target, and the time-series predictions of the "bygones-are-bygones" version of inflation targeting are rejected by the data in favor of those implied by price-level targeting. These results indicate heterogeneity in the actual application of inflation targeting across countries and, for Canada and the UK, imply that the characterization of inflation targeting as a policy where shocks are accommodated is at odds with the data. Moreover, up to extent that their current policies already resemble price-level targeting, the welfare gains of replacing inflation with (explicit) price-level targeting are likely to be small.

Keywords: Inflation-targeting; price-level targeting; unit-root tests (search for similar items in EconPapers)
JEL-codes: E3 E5 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2009
References: Add references at CitEc
Citations: View citations in EconPapers (8)

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http://hdl.handle.net/1866/4000 (application/pdf)

Related works:
Journal Article: Do Inflation-Targeting Central Banks Implicitly Target the Price Level? (2014)
Working Paper: Do Inflation-Targeting Central Banks Implicitly Target the Price Level? (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:mtl:montde:2009-15

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