EXCURSION FROM ASSIGNED ALT WHEN PIC ELECTED TO SHUT DOWN ENGINE FOR TRAINING. ALTIMETER HAD NOT BEEN SET LEAVING FL180.

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DURING CLB TO ALT ON A DEAD HEAD LEG BTWN PCF AND SAV. COPLT WAS FLYING AND I WAS GIVING HIM ORAL INSTRUCTION ON SINGLE ENG EMER PROCS INCLUDING FLT CHARACTERISTICS EMER ACTION PROCS AND AUTOFEATHER OPERATION. THE COPLT; THOUGH LOW TIME; 700 HRS TT; 75 MULTI; HAS SHOWN UNUSUAL COMPETENCE FOR HIS EXPERIENCE LEVEL. AS WE CLBED TO FL210 I CONTINUED TO EXPLAIN THE PROCS AND AUTOFEATHER OPERATION AS HE LEVELED OFF. HE LISTENED INTENTLY AND ASKED APPROPRIATE QUESTIONS AS WE LEVELED OFF. HOWEVER; TO GAIN AN ELEMENT OF SURPRISE ON WHAT HE WAS SURE WOULD BE A SINGLE ENG EMER; I SHUT DOWN THE LEFT ENG AS HE WAS SETTING THE PROPS FOR CRUISE. HE COMPLETED THE STEPS WELL; BUT LOST 200' OF ALT. SHORTLY THEREAFTER; AS WE WERE DISCUSSING FLT CHARACTERISTICS JAX CENTER CALLED AND SAID WE WERE 300' LOW. IT WAS THEN NOTICED THAT THE ALTIMETER WAS STILL SET TO THE LCL ALTIMETER SETTING OF 30.15 AND WE INDEED WERE IN VIOLATION. UNFORTUNATELY; SINGLE ENG PERFORMANCE AT THAT ALT WOULDN'T PERMIT AN ADEQUATE CLB SO I HAD TO REQUEST DSCNT TO FL190. FORTUNATELY; THE VIOLATION HAD NO SEVERE SAFETY IMPLICATIONS; BUT IT COULD HAVE. MY COMPLACENCY ABOUT THE COPLT'S GOOD PERFORMANCE CAUSED ME TO NOT WATCH CLOSELY ENOUGH DURING THE ROUTINE CLB AND LET ME ASSUME HE WOULD MAINTAIN HIS ALT WHEN THE FAILURE OCCURRED. ALSO MY POOR JUDGEMENT IN DOING THIS ACTION UNDER IFR DIDN'T PERMIT QUICK RECOVERY TO AVOID VIOLATING AIRSPACE AND; HAD I COMPLETED THE CRUISE CHK BEFORE SHUTTING DOWN THE ENG; WE WOULD HAVE NOTED THE ALTIMETER SETTING AND THE VIOLATION WOULD HAVE NOT OCCURRED.