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

Author

Listed:
  • Jiri Bohm
  • Jan Filacek
  • Ivana Kubicova
  • Romana Zamazalova

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.

Suggested Citation

  • Jiri Bohm & Jan Filacek & Ivana Kubicova & Romana Zamazalova, 2011. "Price-Level Targeting - A Real Alternative to Inflation Targeting?," Research and Policy Notes 2011/01, Czech National Bank.
    • Handle: RePEc:cnb:rpnrpn:2011/01
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    References listed on IDEAS

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    Cited by:

    1. Julian A. Parra-Polania & Luisa F. Acuña-Roa, 2013. "Price-Level Targeting: an omelette that requires breaking some Inflation-Targeting eggs?," Borradores de Economia 10984, Banco de la Republica.
    2. Richard Pospisil & Jarmila Koudelkova, 2016. "Price Convergence to the EU: Some Evidence for the Czech Republic," Global Economic Observer, "Nicolae Titulescu" University of Bucharest, Faculty of Economic Sciences;Institute for World Economy of the Romanian Academy, vol. 4(2), pages 32-38, November.
    3. repec:cnb:ocpubv:rb12/2 is not listed on IDEAS
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    5. repec:cnb:ocpubv:rb10/2 is not listed on IDEAS
    6. Aleksandra Halka, 2015. "Lessons from the crisis.Did central banks do their homework?," NBP Working Papers 224, Narodowy Bank Polski.
    7. repec:cnb:ocpubv:rb12/1 is not listed on IDEAS
    8. repec:cnb:ocpubv:rb11/1 is not listed on IDEAS
    9. Michal Franta & Tomas Holub & Petr Kral & Ivana Kubicova & Katerina Smidkova & Borek Vasicek, 2014. "The Exchange Rate as an Instrument at Zero Interest Rates: The Case of the Czech Republic," Research and Policy Notes 2014/03, Czech National Bank.

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    More about this item

    Keywords

    Communication; deflation; price-level targeting; time inconsistency; zero bound.;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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