Inflation Forecast Targeting Revisited

Christian Conrad, Zeno Enders and Gernot Müller

No 12006, CESifo Working Paper Series from CESifo

Abstract: Under inflation forecast targeting, central banks such as the ECB adjust policy to keep expected inflation on target. We evaluate the ECB’s inflation forecasts: they are unbiased and efficient but contain little information at forecast horizons beyond three quarters. In a New Keynesian model with transmission lags, inflation forecast targeting is indeed effective in stabilizing inflation—provided there is no forward-looking behavior—though the information content of forecasts is unrealistically high. In the presence of forward-looking behavior, the information content declines because monetary policy becomes more effective in meeting the target, but inflation is best stabilized by targeting current inflation.

Keywords: inflation targeting; inflation forecast targeting; monetary policy; inflation forecast; information content; target horizon; ECB (search for similar items in EconPapers)
JEL-codes: C53 E52 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_12006

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