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Optimal monetary policy: is price‐level targeting the next step?
Author(s) -
Minford Patrick,
Peel David
Publication year - 2003
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/j.0036-9292.2003.05005005.x
Subject(s) - economics , indexation , inflation targeting , inflation (cosmology) , price level , econometrics , variance (accounting) , monetary policy , macro , macroeconomics , computer science , physics , accounting , theoretical physics , programming language
We examine whether inflation targeting should be regarded as optimal. Targeting inflation implies (undesirably) that price level variance tends to infinity: we produce some evidence from both a representative agent model and a long‐used forecasting model that, once an endogenous indexation response is allowed for, price level targeting imposes no extra costs of macro variability, indeed gives significant gains.