Price level targeting

Proposed policy for a central bank in which it does not set a specific numerical target for the inflation rate, as is the case with the ECB (inflation targeting). Instead, it sets a target range for the price level and undertakes to smooth out deviations from this target range within a certain period of time. If the price level rises sharply, for example due to an oil price shock, the central bank would have to reduce the money supply. If there is a recession with falling prices, monetary policy could now provide liquidity through measures such as quantitative easing and support demand, thus (perhaps) slowing down a downturn. – As an advantage of such a target path, it is believed that this would reduce uncertainty about the future price level. As a disadvantage, one probably sees higher fluctuations (oscillations) in the inflation rate. It is also doubted whether price level control would promote confidence in monetary policy. Moreover, it must be asked where the limits of monetary policy end and economic policy begins. For such a policy, however, the central bank – at least the ECB – has neither the necessary instruments nor, above all, the democratic legitimacy. – See activism, central bank policy, orientation, one-target, inflation forecasting model, targeting, two-pillar principle. – Cf. Monthly Report of the Deutsche Bundesbank, January 2010, pp. 30 ff. (detailed presentation, but linguistically unattractive in parts; overviews; references).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
https://de.wikipedia.org/wiki/Gerhard_Ernst_Merk
https://www.jung-stilling-gesellschaft.de/merk/
https://www.gerhardmerk.de/