Price-Level Targeting versus Inflation Targeting. A theoretical Approach
Abstract
This paper provides a comparative analysis on IT strategy and targeting the price level assesses the implications and highlights the challenges of an eventual transition to a new monetary policy strategy. Balancing the advantages (mainly better anchored inflation expectations) and disadvantages (communication difficulties) generated by following a potential price-level targeting strategy and the necessary prerequisites for its functionality (predictive agents, fully familiar with the implications of such a strategy and with complete confidence in the monetary authority) has led us to the conclusion that there is no common acceptance that price level targeting strategy might replace the present IT framework
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