Implementing Optimal Policy Through Inflation-Forecast Targeting

Lars Svensson and Michael Woodford

No 4229, CEPR Discussion Papers from Centre for Economic Policy Research

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: Inflation targeting; Commitment; Discretion (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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Citations: View citations in EconPapers (110)

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Related works:
Chapter: Implementing Optimal Policy through Inflation-Forecast Targeting (2004)
Working Paper: Implementing Optimal Policy through Inflation-Forecast Targeting (2003)
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