Do Inflation-Targeting Central Banks Implicitly Target the Price Level?

Serie

• Cahiers de recherche

Resumen

• This paper reports graphical and statistical evidence that the inflation targeting regimes in Canada and the UK - but not in Australia, New Zealand, or Sweden - actually resemble price-level targeting. In particular, the price level closely tracks the path implied by the inflation target, and the time-series predictions of the bygones-are-bygones version of inflation targeting are rejected by the data in favor of those implied by price-level targeting. These results indicate heterogeneity in the actual application of inflation targeting across countries and, for Canada and the UK, imply that the characterization of inflation targeting as a policy where shocks are accommodated is at odds with the data. Moreover, up to extent that their current policies already resemble price-level targeting, the welfare gains of replacing inflation with (explicit) price-level targeting are likely to be small.

autores

• Ruge-Murcia, Francisco Javier

fecha de publicación

• 2009

Área temática

• E3 - Precios, fluctuaciones y ciclos económicos
• E5 - Política monetaria, bancos centrales, oferta de dinero y crédito

Enfoque geográfico

• Asia  Continent
• Colombia  Country
• South America  Continent

Líneas de investigación

• Inflation Targeting
• Price Level Targeting
• Unit Root Tests

Issue

• 2009-15