Journal Article

Monetary policy rules and stability: inflation targeting versus price-level targeting

Abstract: Monetary policy rules help central banks exercise the discipline necessary to achieve their long-term goals. The type of rule many banks are turning to these days is inflation targeting, which has several advantages. But because banks base their actions on forecasts of future inflation, following the rule can lead to inflation-rate instability in some cases. A price-level target offers the same benefits as an inflation target but, because actions are based on past inflation, it avoids this vulnerability.

Keywords: Banks and banking, Central; Monetary policy; Inflation (Finance);

Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Economic Commentary

Publication Date: 2002

Issue: Feb

Order Number: 2