Hybrid Inflation and Price-Level Targeting

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Abstract
In this paper we investigate the properties of monetary regimes that combine price-level and inflation targeting. We look both at an optimal control and at a simple rule characterisation of these regimes. We derive numerical results by modelling the economy as a small-scale open-economy RE model calibrated on UK data. We conclude that: (1) the relative merits of price-level and inflation targeting, as well as of mixes of these two, depend on particular modelling and policy assumptions; and (2) these merits do not always change gradually and/or monotonically as we move from one regime to another.

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