Inflation Targeting with NAIRU Uncertainty and Endogenous Policy Credibility

Peter Isard, Douglas Laxton and Ann-Charlotte Eliasson

No 2001/007, IMF Working Papers from International Monetary Fund

Abstract: Stochastic simulations are employed to compare performance of monetary policy rules in linear and nonlinear variants of a small macro model with NAIRU uncertainity under different assumptions about the way inflation expectations are formed. Cases in which policy credibility is ignored or treated as exogenous are distinguished from cases in which credibility and inflation expectations respond endogenuously policy credibility strengthens the case for forward-looking inflation forecast based rules relative to backward-looking Taylor rules.

Keywords: WP; inflation rate; monetary policy; inflation targeting; monetary policy rules; credibility; NAIRU uncertainty; Taylor rule; inflation expectation; unemployment gap; IFB rule; nominal interest rate; inflation-unemployment process; inflation outcome; Inflation; Unemployment rate; Real interest rates; Unemployment (search for similar items in EconPapers)
Pages: 41
Date: 2001-01-01
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Citations: View citations in EconPapers (23)

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Journal Article: Inflation targeting with NAIRU uncertainty and endogenous policy credibility (2001)
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