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Federal Reserve Bank of Cleveland
Economic Commentary
Monetary policy rules and stability: inflation targeting versus price-level targeting
Charles T. Carlstrom
Timothy S. Fuerst
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.


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Charles T. Carlstrom & Timothy S. Fuerst, "Monetary policy rules and stability: inflation targeting versus price-level targeting" , Federal Reserve Bank of Cleveland, Economic Commentary, issue Feb, 2002.
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Keywords: Monetary policy ; Inflation (Finance) ; Banks and banking; Central
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