Inflation Targeting: A Framework for Communication
AbstractWe analyze how the provision of an explicit numerical inflation target provides a focal point for agents' expectations when information is imperfect. Communicating a target and a tolerance band around it provides a clear framework with which to evaluate monetary policy outcomes. We show how inflation targeting exploits the self-reinforcing loop between success and credibility to help the Central Bank endure large and long lasting shocks. Last, we derive the optimal band width around the target, which exploits the benefits of providing a focal point while maximizing the probability of success.
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Bibliographic InfoArticle provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.
Volume (Year): 9 (2009)
Issue (Month): 1 (December)
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Web page: http://www.degruyter.com
Other versions of this item:
- Maria Demertzis & Nicola Viegi, 2007. "Inflation Targeting - a Framework for Communication," DNB Working Papers 149, Netherlands Central Bank, Research Department.
- Maria Demertzis & Nicola Viegi, 2008. "Inflation Targeting: a Framework for Communication," Working Papers 71, Economic Research Southern Africa.
- C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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- Maria Demertzis & Massimiliano Marcellino & Nicola Viegi, 2009.
"Anchors for Inflation Expectations,"
DNB Working Papers
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- Isabelle SALLE & Marc-Alexandre SENEGAS & Murat YILDIZOGLU, 2013. "How Transparent About Its Inflation Target Should a Central Bank be? An Agent-Based Model Assessment," Cahiers du GREThA 2013-24, Groupe de Recherche en Economie Théorique et Appliquée.
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- Cheick Kader M'baye, 2012. "Inflation Targeting under Heterogeneous Information and Sticky Prices," Working Papers 1202, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
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