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Volume 62, Issue 1


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

Böhm, Jiří; Filáček, Jan; Kubicová, Ivana; Zamazalová, Romana

Year: 2012   Volume: 62   Issue: 1   Pages: 2-26

Abstract: This paper reviews price-level targeting in the light of current theoretical knowledge and past practical experience. The authors discuss progress in the economic debate on this issue, starting with the traditional arguments discussed in the early 1990s and ending with the most recent literature from the beginning of the new millennium. They 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.

JEL classification: E31, E52, E58

Keywords: price-level targeting, deflation, zero bound, communication, time inconsistency

RePEc: http://ideas.repec.org/a/fau/fauart/v62y2012i1p2-26.html

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