Research Catalog

Title

Is there a Case for Price-level Targeting? [electronic resource] / Boris Cournède and Diego Moccero

Author

Cournède, Boris.

Publication

Paris : OECD Publishing, 2009.

Details

Additional Authors

Moccero, Diego.

Description

27 p.; 21 x 29.7cm.

Summary

There is a case, but there are also counter-arguments. With sufficient forward-looking behaviour among firms and households, price-level targeting can act as a powerful built-in stabiliser through automatic shifts in inflation expectations. This stabilisation mechanism reduces the need for large shifts in policy rates, alleviating the risk of hitting the zero lower bound of nominal interest rates and falling into a liquidity trap. Furthermore, credible price-level targeting can support capital accumulation by protecting the long-run purchasing power of money and reducing the inflation risk premium embedded in actual long-term real interest rates. However, price-level targeting can imply welfare-reducing policy-induced output volatility in situations where the degree of forward-looking behaviour is very low. The self-regulating capacity of price-level targeting can be undermined if central banks are not fully credible. Besides, aggressive inflation targeting can replicate some of (but not all) the benefits of price-level targeting. On balance, the case for adopting price-level targeting is not clear-cut, all the more so since transition costs are likely to be significant.

Series Statement

OECD Economics Department Working Papers, 1815-1973 ; no.721

Uniform Title

OECD Economics Department Working Papers, no.721.

Subject

Economics

LCCN

10.1787/221824208526

OCLC

oecd-lib-003579

Author

Cournède, Boris.

Title

Is there a Case for Price-level Targeting? [electronic resource] / Boris Cournède and Diego Moccero

Imprint

Paris : OECD Publishing, 2009.

Series

OECD Economics Department Working Papers, 1815-1973 ; no.721

OECD Economics Department Working Papers, 1815-1973 ; no.721.

Connect to:

http://dx.doi.org/10.1787/221824208526

Indexed Term

Economics

Added Author

Moccero, Diego.

Other Standard Identifier

10.1787/221824208526 doi