Journal Article
The inflation-output variability tradeoff and price-level targets
Abstract: In this article, the authors describe a popular monetary policy framework based on a neoclassical Phillips Curve model. Here, the choice between an inflation target and a price-level target depends on characteristics of real output. If the output gap is relatively persistent, then targeting the price level results in a better set of policy options for the central bank. The authors present evidence from the G-10 countries showing that conventionally measured output gaps are highly persistent. The policy implication of assuming rational expectations and this Phillips Curve model is that central banks should set objectives for a price level, not an inflation rate.
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https://fraser.stlouisfed.org/title/review-federal-reserve-bank-st-louis-820/january-february-1999-620696
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Bibliographic Information
Provider: Federal Reserve Bank of St. Louis
Part of Series: Review
Publication Date: 1999
Issue: Jan
Pages: 23-32
Order Number: 1