Should central banks adopt price-level targeting? Quantifying the long-term impact on social welfare
Lead Research Organisation:
University of Glasgow
Department Name: College of Social Sciences
Abstract
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Publications
Hatcher M
(2014)
Indexed versus nominal government debt under inflation and price-level targeting
in Journal of Economic Dynamics and Control
Hatcher M
(2014)
STABILISATION POLICY, RATIONAL EXPECTATIONS AND PRICE-LEVEL VERSUS INFLATION TARGETING: A SURVEY
in Journal of Economic Surveys
M. Hatcher
(2013)
The inflation risk premium under imperfectly credible monetary policy
Michael Hatcher (Author)
(2013)
Indexed versus nominal government debt under inflation and price-level targeting
| Description | The research had two aspect: (i) quantifying the long-term potential gains of price-level targeting, (ii) an overall assessment of the suitability of price-level targeting as compared to the current regime of inflation targeting. On point (i) it was found that there are non-trivial long-term welfare gains (approx. 0.4% of GDP) from price-level targeting because it reduces long run inflation risk and therefore makes government debt financing less expensive: the inflation risk premium is lower than under inflation targeting. Young generations would gains primarily through lower taxes, whereas old generations would gain from lower exposure to inflation risk as well as lower taxes. On point (ii) myself and a co-author survey the literature on price-level targeting and highlight that it also has benefits in setting where agents are forward-looking and monetary policymakers face the zero lower bound problem that nominal interest rates cannot be cut below zero. Hence, we argue that central banks should seriously consider price-level targeting as a future regime choice. Some useful links are: - https://voxeu.org/article/inflation-targeting-vs-price-level-targeting - https://www.sciencedirect.com/science/article/pii/S0165188914001353 - https://onlinelibrary.wiley.com/doi/full/10.1111/joes.12096 |
| Exploitation Route | Future research could build on these findings by assessing their robustness in models where commercial banks and other financial institutions play an important role. Such models are currently relatively primitive. Models where agents hold non-rational expectations are also an important area for future research. Central banks or governments wishing to look into price-level targeting may contact me via my website: https://sites.google.com/site/michaelhatcherecon/home. |
| Sectors | Education Government Democracy and Justice |
| URL | https://voxeu.org/article/inflation-targeting-vs-price-level-targeting |
| Description | My papers have been cited by central banks and other international economic institutions. I have written online articles which get to a wider audience than academia alone. |
| First Year Of Impact | 2014 |
| Sector | Other |
| Impact Types | Economic |
| Description | Bank of Canada Seminar: Aggregate and welfare effects of long run inflation risk under inflation and price-level targeting |
| Form Of Engagement Activity | Participation in an activity, workshop or similar |
| Part Of Official Scheme? | No |
| Geographic Reach | International |
| Primary Audience | Policymakers/politicians |
| Results and Impact | This output refers to a 1.5 hour seminar given at the Bank of Canada (Canada's central bank) on the "Aggregate and welfare effects of long run inflation risk under inflation and price-level targeting." It draws primarily on my working paper of the same name, but results from my paper "Indexed versus nominal government debt under inflation and price-level targeting" are also discussed. As well as the seminar, 3 hours of meetings with Bank staff were organised on the same day. Contacts at the Bank asked for me to keep them updated with my work |
| Year(s) Of Engagement Activity | 2013 |
| URL | http://dragon155.startdedicated.com/wolfcms/public/backup/BoC_Hatcher_2013.pdf |
| Description | CEF Conference 2013 Vancouver: Indexed versus nominal government debt under inflation and price-level targeting |
| Form Of Engagement Activity | A talk or presentation |
| Part Of Official Scheme? | No |
| Geographic Reach | International |
| Primary Audience | Professional Practitioners |
| Results and Impact | Conference presentation on my paper "Indexed versus nominal government debt under inflation and price-level targeting." Due to strict time limits, this is a short presentation of 20-30 minutes in duration. The conference in question is the 19th International Conference in Computing in Economics and Finance in Vancouver, Canada. Networking with other academics, some of whom are now co-authors on current projects (e.g. Xiaoshan Chen, University of Stirling) |
| Year(s) Of Engagement Activity | 2013 |
| URL | http://dragon155.startdedicated.com/wolfcms/public/backup/CEF_2013.pdf |
| Description | Economics Seminar (Southampton): Monetary regimes and the optimal maturity of government debt |
| Form Of Engagement Activity | A talk or presentation |
| Part Of Official Scheme? | No |
| Geographic Reach | Local |
| Primary Audience | Participants in your research and patient groups |
| Results and Impact | Talk sparked questions and discussion afterwards. The feedback I received will be used to improve the paper before submission to a journal. Discussion generated new research ideas which I am following up. |
| Year(s) Of Engagement Activity | 2014 |
| URL | http://dragon155.startdedicated.com/wolfcms/public/backup/Short_long_debt_2014_Soton_workshop.pdf |
| Description | MMF Conference 2013 (London): Aggregate and welfare effects of long run inflation risk |
| Form Of Engagement Activity | A talk or presentation |
| Part Of Official Scheme? | No |
| Geographic Reach | International |
| Primary Audience | Professional Practitioners |
| Results and Impact | This presentation was delivered at the 45th Money Macro and Finance (MMF) conference at Queen Mary University of London on 11 Sep 2013. It is a revised version of my earlier presentations/results on long run inflation risk, based on changes suggested by journal referees. Networking with colleagues in the same area of research in UK academia |
| Year(s) Of Engagement Activity | 2013 |
| URL | http://dragon155.startdedicated.com/wolfcms/public/backup/MMF_2013_ESRC.pdf |
| Description | PhD Workshop (Glasgow): Stabilization policy, rational expectations and price-level versus inflation targeting |
| Form Of Engagement Activity | Participation in an activity, workshop or similar |
| Part Of Official Scheme? | No |
| Geographic Reach | Local |
| Primary Audience | Postgraduate students |
| Results and Impact | Presentation related to my working paper with Patrick Minford. The presentation was given at a workshop at the University of Glasgow on 27 Sep 2013. After we brought out a working paper version of this article as a CEPR discussion paper we were invited to submit an article to voxeu.org by Professor Richard Baldwin |
| Year(s) Of Engagement Activity | 2013 |
| URL | http://dragon155.startdedicated.com/wolfcms/public/backup/Hatcher_Minford_PhD_Workshop_Sep_2013.pdf |
| Description | PhD Workshop (Glasgow): The inflation risk premium under perfect and imperfect credibility of monetary policy |
| Form Of Engagement Activity | A talk or presentation |
| Part Of Official Scheme? | No |
| Geographic Reach | Local |
| Primary Audience | Postgraduate students |
| Results and Impact | This presentation was delivered at the PhD Economics Reading Group at the University of Glasgow on 1 Nov 2013. It is relevant to the project because it focuses on the inflation risk premium in the model used in my working papers "Aggregate and welfare effects of long run inflation risk under inflation and price-level targeting" and "Indexed versus nominal government debt under inflation and price-level targeting." The inflation risk premium plays an important role in both papers, and the cases of perfect and imperfect credibility of monetary policy are considered in both papers. Audience reported some surprise at the results |
| Year(s) Of Engagement Activity | 2013 |
| URL | http://dragon155.startdedicated.com/wolfcms/public/backup/Hatcher_PhD_Workshop_Nov_2013.pdf |
| Description | RES Conference 2014: The inflation risk premium on government debt in an overlapping generations model |
| Form Of Engagement Activity | A talk or presentation |
| Part Of Official Scheme? | No |
| Geographic Reach | International |
| Primary Audience | Professional Practitioners |
| Results and Impact | Slides presented at the Royal Economic Society Annual Conference 2014. Networking with economic researchers in UK academia. |
| Year(s) Of Engagement Activity | 2014 |
| URL | http://dragon155.startdedicated.com/wolfcms/public/backup/Hatcher_RES_2014.pdf |
| Description | Vox article: Inflation targeting vs price-level targeting: A new survey of theory and empirics |
| Form Of Engagement Activity | A magazine, newsletter or online publication |
| Part Of Official Scheme? | No |
| Geographic Reach | International |
| Primary Audience | Public/other audiences |
| Results and Impact | Online article on http://www.voxeu.org of approx. 1500 words. We were invited to submit this article by the editor of the column, Professor Richard Baldwin. Our article has received 14448 reads and 147 shares as of Sep 17 2014. The article was published online on May 11 2014. |
| Year(s) Of Engagement Activity | 2014 |
| URL | http://www.voxeu.org/article/inflation-targeting-vs-price-level-targeting |