Optimal monetary policy: is price‐level targeting the next step?

2009

Economic Affairs

This paper summarises arguments for and against a shift by central banks from inflation targeting to price-level targeting. It concludes that the weight of the evidence favours a shift. One of the advantages of price-level targeting is its superior macroeconomic performance when short-term nominal interest rates are close to zero. Since this is the current situation facing many central banks, it may also be politically opportune to consider such a switch.

“…This point was developed in a series of papers by Patrick Minford with various co‐authors (Minford, 2004; Minford and Peel, 2003; Minford, et al. , 2003).…”

Section: Recent Results On the Benefits Of Price‐level Targetingmentioning

confidence: 99%

Is It Time for Price‐level Targeting?

2009

Economic Affairs

“…Similarly, wage and financial contracts may display quite different forms under different policy regimes. This point is developed in a series of papers by Minford with various co-authors (Minford and Peel, 2003;Minford, 2004). They build models with households that cannot insure against fluctuations in their real wage, and that have a strong interest in smoothing those fluctuations.…”

Section: The Effects Of the Monetary Regime On Contractingmentioning

confidence: 99%

Price‐Level Targeting and Stabilisation Policy: A Survey

2011

Issues in Finance

This paper surveys recent articles on the costs and benefits of pricelevel targeting, focusing its use as a tool for stabilisation policy. It discusses how price-level targeting can affect the short-run trade-off between output and inflation variability by influencing inflation expectations. It reviews how assigning an explicit price-level target to a central bank that is unable to commit to its future policies can improve economic performance. It surveys other potential benefits and costs. Among the costs, it underlines the importance of perfectly rational expectations for the optimality of price-level targeting, and an exacerbation of the time inconsistency problem.

“…This point is developed in a series of papers by Minford with various co‐authors (Minford and Peel, 2003; Minford et al , 2003; Minford, 2004). They build models with households that cannot insure against fluctuations in their real wage, and that have a strong interest in smoothing those fluctuations.…”

Section: Other Issues Related To Price‐level Targetingmentioning

confidence: 99%

Price‐level Targeting and Stabilisation Policy: A Survey

Journal of Economic Surveys

2009

Abstract. This paper surveys recent articles on the costs and benefits of pricelevel targeting, focusing its use as a tool for stabilisation policy. It discusses how price-level targeting can affect the short-run trade-off between output and inflation variability by influencing inflation expectations. It reviews how assigning an explicit price-level target to a central bank that is unable to commit to its future policies can improve economic performance. It surveys other potential benefits and costs. Among the costs, it underlines the importance of perfectly rational expectations for the optimality of price-level targeting, and an exacerbation of the time inconsistency problem.