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Optimal Inflation Targeting Rules

Marc Giannoni () and Michael Woodford ()

No 9939, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper characterizes optimal monetary policy for a range of alternative economic models in terms of a flexible inflation targeting rule, with a target criterion that depends on the model specification. It shows which forecast horizons should matter, and which variables besides inflation should be taken into account, for each specification. The likely quantitative significance of the various factors considered in the general discussion is then assessed by estimating a small, structural model of the U.S. monetary transmission mechanism with explicit optimizing foundations. An optimal policy rule is computed for the estimated model, and shown to correspond to a multi-stage inflation-forecast targeting procedure. The degree to which actual U.S. policy over the past two decades has conformed to the optimal target criteria is then considered.

JEL-codes: E52 E61 (search for similar items in EconPapers)
Date: 2003-09
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
Note: EFG ME
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Published as Optimal Inflation-Targeting Rules , Marc Giannoni, Michael Woodford. in The Inflation-Targeting Debate , Bernanke and Woodford. 2005

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Chapter: Optimal Inflation-Targeting Rules (2004) Downloads
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