This paper examines the effectiveness of central bank forward guidance under inflation and price-level targeting monetary policies. The results show that the attenuation of the effects of forward guidance can be solved if a central bank switches from inflation targeting to price-level targeting. Output and inflation respond more favorably to forward guidance with price-level targeting than inflation targeting. A monetary policy rule that aggressively reacts to inflation and includes interest rate inertia narrows the performance gap between the two policy regimes. However, forward guidance with price-level targeting is still preferred to forward guidance with inflation targeting after performing multiple robustness checks.
Cole, Stephen J., "(WP 2016-06) The Effectiveness of Central Bank Forward Guidance under Inflation and Price-Level Targeting" (2016). Economics Working Papers. 56.