Price-level targeting reduces economic risks in low-inflation environments
Price-level targeting is a better way to manage risks in a low-inflation economy compared to inflation targeting. By focusing on keeping prices stable, policymakers can reduce the chances of severe economic downturns like deflation or recession. This approach is more effective in dealing with these risks when interest rates are already very low. While both strategies have similar overall economic outcomes, price-level targeting can lead to more stable inflation rates by shaping expectations about future prices.