  The adoption of a "makeup" strategy is one of the proposals in the ongoing
review of the Fed's monetary policy framework. Another suggestion, to avoid the
zero lower bound, is a more active role for fiscal policy. We put together
these ideas to study monetary-fiscal interactions under price level targeting.
Under price level targeting and a fiscally-led regime, we find that following a
deflationary demand shock: (i) the central bank increases (rather than
decreases) the policy rate; (ii) the central bank, thus, avoids the zero lower
bound; (iii) price level targeting is generally welfare improving if compared
to inflation targeting.
