which an emerging market central bank that targets inflation might lose control of inflation--in other words of the … literature, from Sargent and Wallace (1981) to the modern fiscal theory of the price level has discussed how an unsustainable … perverse effect on inflation. We show that the presence of default risk reinforces the possibility that a vicious circle might …

Lukas Heim evaluates the performance of a price-level targeting rule compared to that of a standard inflation targeting …, and several additional structural disturbances. The results show that - exactly as expected - the volatility of inflation …-side shocks. Since inflation and output are targeted simultaneously, none of the two policies is strictly dominant. Contents …