The implications of alternative central bank interest-rate-setting rules if inflation targeting were abandoned in the United States and the euro zone

The major weakening of the link between the economic cycle and inflation has led to a debate on the suitability of inflation targeting as a monetary policy rule: how can inflation be target ed if it does not return at the end of an expansion period? Two other possible monetary policy rules are often considered: Price-level targeting , where monetary policy is tasked with keeping the price level (and not growth in prices) on its target trend; Nominal growth targeting , where nominal GDP growth replace s inflation as the monetary policy objective. We examine what the monetary policy stance would be today in the United States and the euro zone if one or the other of these alternative monetary policy objectives were pursued: Price-level targeting would lead to an even more expansionary monetary policy than at present; Nominal growth targeting would lead to a significantly more restrictive monetary policy. This shows the extent to which the monetary policy stance can depend on the choice of monetary policy rule, which is an argument against using a strict monetary policy rule.