Hybrid inflation and price level targeting

Quarterly Bulletin 2001 Q2
Published on 01 June 2001

By Nicoletta Batini and Anthony Yates

The success and spread of inflation targeting (documented by, for example, Julius et al (2000)) has stimulated interest in the merits of price level targeting. Under inflation targeting, the expected variance of the price level increases without bound as we look further into the future; under price level targeting, policy acts to reverse shocks to the price level, and the expected variance is constant.

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