TY  - JOUR
AU  - Svensson,Lars E. O.
TI  - Price Level Targeting vs. Inflation Targeting: A Free Lunch?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5719
PY  - 1996
Y2  - August 1996
UR  - http://www.nber.org/papers/w5719
L1  - http://www.nber.org/papers/w5719.pdf
N1  - Author contact info:
Lars E.O. Svensson
Sveriges Riksbank
SE-103 37 Stockholm
SWEDEN
Tel: +46 8 787 0107
Fax: +46 8 21 0531
E-Mail: lars.svensson@iies.su.se
AB  - Price level targeting (without base drift) and inflation targeting (with base drift) are compared under commitment and discretion, with persistence in unemployment.  Price level targeting is often said to imply more short-run inflation variability and thereby more employment variability than inflation targeting.  Counter to this conventional wisdom, under discretion a price level target results in lower inflation variability than an inflation target (if unemployment is at least moderately persistent).  A price level target also eliminates the inflation bias under discretion and, as is well known, reduces long-term price variability.  Society may be better off assigning a price level target to the central bank even if its preferences correspond to inflation targeting.  A price level target thus appears to have more advantages than commonly acknowledged.
ER  -