A pioneer of a new monetary policy? Sweden's price-level targeting of the 1930s revisited

Abstract

The paper re-examines Sweden’s price level targeting during the 1930s which is regarded as a precursor of today’s inflation targeting. According to conventional wisdom, the Riksbank was the first central bank to adopt price level targeting, although in practice giving priority to exchange rate stabilisation. Based on Bayesian econometric techniques and the evaluation of new archival sources, we come to the conclusion that defending a fixed exchange rate is hard to reconcile with the claim of adopting price level targeting. This finding has implications for the prevailing view of the 1930s as a decade of great policy innovations.