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Sveriges Riksbank (Central Bank of Sweden) Working Paper Series, Sveriges Riksbank (Central Bank of Sweden)

No 106:
Price-level Targeting versus Inflation Targeting in a Forward-looking Model

David Vestin ()

Abstract: This paper examines a price-level target in a model with a forward-looking Calvo-Taylor Phillips curve. Contrary to conventional wisdom, it is found that price-level targeting leads to a better trade-off between inflation and output-gap variability than inflation targeting, when the central bank acts under discretion. In some cases, price-level targeting under dircretion results in the same equilibrium as inflation targeting under commitment.

Keywords: Monetary policy; Price-level targeting; Inflation targeting; (follow links to similar papers)

JEL-Codes: E52; E58; (follow links to similar papers)

37 pages, May 1, 2000

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