Targeting Inflation over the Short, Medium and Long Term

Marianne Nessen ()

No 98, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: A central bank pursuing the policy of inflation targeting aims to keep inflation as close as possible to a pre-announced value. But which 'inflation' should this be? Quarterly, annual, biennial? In theoretical models it is typically inflation during one period. We analyze how changing the period over which the inflation rate is defined - i.e. changing central bank preferences - affects optimal monetary policy. It is shown that when targeting inflation is the sole objective of the central bank, more aggressive monetary policy results; but when output stabilization is also a concern, a 'longer-term view' typically leads to a more cautious conduct of monetary policy and less variability in output. The conditions under which inflation targeting in effect becomes price level targeting are also examined.

Keywords: Inflation targeting; Price level targeting; Optimal monetary policy (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Pages: 30 pages
Date: 1999-11-01
New Economics Papers: this item is included in nep-cba and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Published in Journal of Macroeconomics, 2002, pages 313-329.

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Journal Article: Targeting inflation over the short, medium and long term (2002)
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