Price‐level Targeting and Stabilisation Policy: A Survey

Ambler, Steve

doi:10.1111/j.1467-6419.2009.00601.x

Cited by 29 publications

(17 citation statements)

References 37 publications

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“…We have surveyed recent literature comparing IT and PT as macroeconomic stabilisation policies, focusing in particular on New Keynesian models and areas that have seen significant developments since Ambler's () survey: optimal monetary policy under commitment and discretion; the ZLB; financial frictions and the costs of transition from IT to PT. The main conclusion reached by Ambler was that the ability of PT to improve social welfare in New Keynesian models rests with the assumption of rational expectations.…”

Section: Resultsmentioning

confidence: 99%

“…As Ambler () makes clear, PT was initially motivated as a way of providing the economy with long‐term price stability. Nevertheless, most of the recent interest in PT comes from its implications for short‐run macro stabilisation, that is, economic stability at business cycle frequencies.…”

Section: Macro Stabilisation Literaturementioning

confidence: 99%

“…In this section, we first discuss the main findings from the macro stabilisation literature on IT versus PT, as surveyed by Ambler (). We then turn to more recent contributions that shed light on robustness to extensions of the baseline New Keynesian model.…”

Section: Macro Stabilisation Literaturementioning

confidence: 99%

“…Our survey begins by discussing recent developments in the monetary policy literature before turning to the macro stabilisation literature on IT versus PT. We focus on New Keynesian models and important developments since Ambler's () survey: optimal monetary policy under commitment and discretion; the zero lower bound (ZLB) on nominal interest rates; financial frictions and the costs of transition to a PT regime. Some of these recent developments are initial attempts to address issues raised by the financial crisis.…”

Section: Introductionmentioning

confidence: 99%

“…Other useful surveys of PT include Cournède and Moccero () and Kahn (). Neither Ambler () or these papers survey empirical evidence on rational expectations and New Keynesian models.…”

mentioning

confidence: 99%

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Stabilisation Policy, Rational Expectations and Price‐level Versus Inflation Targeting: A Survey

Hatcher

Minford

2014

Journal of Economic Surveys

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We survey literature comparing inflation targeting (IT) and price‐level targeting (PT) as macroeconomic stabilisation policies. Our focus is on New Keynesian models and areas that have seen significant developments since Ambler's (2009, Price‐level targeting and stabilisation policy: a survey. Journal of Economic Surveys 23(5): 974–997) survey: optimal monetary policy; the zero lower bound; financial frictions and transition costs of adopting a PT regime. Ambler's conclusion that PT improves social welfare in New Keynesian models is fairly robust, but we note an interesting split in the literature: PT consistently outperforms IT in models where policymakers commit to simple Taylor‐type rules, but results in favour of PT when policymakers minimise loss functions are overturned with small deviations from the baseline model. Since the beneficial effects of PT appear to hang on the joint assumption that agents are rational and the economy New Keynesian, we discuss survey and experimental evidence on rational expectations and the applied macro literature on the empirical performance of New Keynesian models. Overall, the evidence is not clear‐cut, but we note that New Keynesian models can pass formal statistical tests against macro data and that models with rational expectations outperform those with behavioural expectations (i.e. heuristics) in direct statistical tests. We therefore argue that policymakers should continue to pay attention to PT.

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Section: Resultsmentioning

confidence: 99%

Section: Macro Stabilisation Literaturementioning

confidence: 99%

Section: Macro Stabilisation Literaturementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

“…Other useful surveys of PT include Cournède and Moccero () and Kahn (). Neither Ambler () or these papers survey empirical evidence on rational expectations and New Keynesian models.…”

mentioning

confidence: 99%

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