Price level targeting,
Definition of Price level targeting:
For instance, if inflation fell below 2% for some time looking backward, the central bank would compensate by aiming for inflation above 2% temporarily until average inflation over the whole period had returned to 2%.
Price level targeting is a monetary policy framework that can be used to achieve price stability. Like inflation targeting, price level targeting establishes targets for a price index like the consumer price index (CPI). But, while inflation targeting is forward looking, price-level targeting looks at past price changes and commits to reversing any temporary deviations from the target rate of inflation.
The strategy for establishing a stable or preset level of pricing to ensure the consistency of price levels. Employing the use of the Consumer Price Index (CPI), price level targeting incorporates future inflation as well as the price levels in previous years to stabilize and maintain price. For this reason, many financial systems consider this practice undesirable as most believe that a small amount of inflation, normally about two percent annually, is beneficial to the economy. See also inflation targeting.
How to use Price level targeting in a sentence?
- Price level targeting is especially useful in a low interest rate environment when rates are already close to zero percent, since it can encourage more aggressive expansionary policy than a simple inflation target.
- Similar to forward-looking inflation targeting, price level targeting makes adjustments based on what has happened in the recent past.
- Price level targeting is a way that central banks enact monetary policy by targeting a specific level of a price index, such as the CPI.
Meaning of Price level targeting & Price level targeting Definition