Price level targeting and the delegation issue in an open economy

- REX inflation is domestic inflation purged of the effects of the real exchange rate.
- REX price level objective allows delegation mechanism to work in an open economy.
- The delegation mechanism does not work for a domestic price level or CPI objective.

A weight-conservative central banker setting policy with discretion and stabilizing the real exchange-rate-adjusted (REX) price level and the output gap can replicate the behavior of the rate of REX inflation and the output gap under policy from a timeless perspective.