Scandinavian Working Papers in Economics

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

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

David Vestin ()
Additional contact information
David Vestin: Institute for International Economic Studies, Postal: Stockholm University, SE-106 91 Stockholm, Sweden

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

JEL-codes: E52; E58

37 pages, May 1, 2000

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