Implementing Optimal Policy through Inflation-Forecast Targeting
Lars Svensson () and
Michael Woodford ()
No 9747, NBER Working Papers from National Bureau of Economic Research, Inc
We examine to what extent variants of inflation-forecast targeting can avoid stabilization bias, incorporate history-dependence, and achieve determinancy 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.
JEL-codes: E42 E52 (search for similar items in EconPapers)
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Published as Implementing Optimal Policy through Inflation-Forecast Targeting , Lars E.O. Svensson, Michael Woodford. in The Inflation-Targeting Debate , Bernanke and Woodford. 2005
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