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Implementing Optimal Policy Through Inflation-Forecast Targeting

Lars Svensson () and Michael Woodford ()

No 4229, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We examine to what extent variants of inflation-forecast targeting can avoid stabilization bias, incorporate history-dependence, and achieve determinacy of equilibrium, so as to reproduce a socially optimal equilibrium. We also evaluate these variants in terms of the transparency of the connection with the ultimate policy goals and the robustness to model perturbations. A suitably designed inflation-forecast targeting rule can achieve the social optimum and at the same time have a more transparent connection to policy goals and be more robust than competing instrument rules.

Keywords: commitment; discretion; inflation targeting (search for similar items in EconPapers)
JEL-codes: E42 E52 E58 (search for similar items in EconPapers)
Date: 2004-02
New Economics Papers: this item is included in nep-mac and nep-mon
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Chapter: Implementing Optimal Policy through Inflation-Forecast Targeting (2004) Downloads
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