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Optimal inflation Targeting: Further Developments of Inflation Targeting

In: Monetary Policy under Inflation Targeting

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  • Lars E. O. Svensson

    (Central Bank of Sweden)

Abstract

The introduction of inflation targeting has led to major progress in practical monetary policy. Nevertheless, inflation-targeting central banks can make substantial additional progress by being more specific, systematic, and transparent about their operational objectives (in the form of using an explicit intertemporal loss function), their forecasts (in the form of deciding on optimal projections of the instrument rate and the target variables), and their communication (in the form of announcing optimal projections of the instrument rate and target variables). Furthermore, progress can be made by incorporating central-bank judgment and model uncertainty in a systematic way in the forecasting and decision process. In particular, incorporating model uncertainty allows the central bank to do more general “distribution forecast targeting” rather than the more restrictive “mean forecast targeting” under the assumption of approximate certainty equivalence.

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

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This chapter was published in: Frederic S. Miskin & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.) Monetary Policy under Inflation Targeting, , chapter 6, pages 187-225, 2007.

This item is provided by Central Bank of Chile in its series Central Banking, Analysis, and Economic Policies Book Series with number v11c06pp187-225.

Handle: RePEc:chb:bcchsb:v11c06pp187-225

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  1. Eric M. Leeper & Tao Zha, 2003. "Modest policy interventions," Working Paper, Federal Reserve Bank of Atlanta 2003-24, Federal Reserve Bank of Atlanta.
  2. Eric Leeper, 2003. "An "Inflation Reports" Report," NBER Working Papers 10089, National Bureau of Economic Research, Inc.
  3. Rudebusch, Glenn D & Svensson, Lars E O, 1998. "Policy Rules for Inflation Targeting," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1999, C.E.P.R. Discussion Papers.
  4. Laurence H. Meyer, 2004. "Practical problems and obstacles to inflation targeting," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 151-160.
  5. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, American Economic Association, vol. 92(5), pages 1521-1534, December.
  6. Svensson, L-E-O, 1997. "Inflation Targeting : Some Extensions," Papers, Stockholm - International Economic Studies 625, Stockholm - International Economic Studies.
  7. Rodrigo Caputo & Felipe Liendo & Juan Pablo Medina, 2007. "New Keynesian Models for Chile in the Inflation-Targeting Period," Central Banking, Analysis, and Economic Policies Book Series, Central Bank of Chile, in: Frederic S. Miskin & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.), Monetary Policy under Inflation Targeting, edition 1, volume 11, chapter 13, pages 507-546 Central Bank of Chile.
  8. Ruge-Murcia, F.J., 2001. "Inflation Targeting Under Asymmetric Preferences," Cahiers de recherche, Centre interuniversitaire de recherche en économie quantitative, CIREQ 2001-04, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  9. Leitemo, Kai, 2003. " Targeting Inflation by Constant-Interest-Rate Forecasts," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 35(4), pages 609-26, August.
  10. Ben S. Bernanke & Michael Woodford, 1997. "Inflation forecasts and monetary policy," Proceedings, Federal Reserve Bank of Cleveland, Federal Reserve Bank of Cleveland, pages 653-686.
  11. Nessén, Marianne & Vestin, David, 2000. "Average Inflation Targeting," Working Paper Series 119, Sveriges Riksbank (Central Bank of Sweden).
  12. Glenn D. Rudebusch, 2006. "Monetary Policy Inertia: Fact or Fiction?," International Journal of Central Banking, International Journal of Central Banking, International Journal of Central Banking, vol. 2(4), December.
  13. Rachel Lomax, 2005. "Inflation Targeting in Practice: Models, Forecasts, and Hunches," Atlantic Economic Journal, International Atlantic Economic Society, International Atlantic Economic Society, vol. 33(3), pages 251-265, September.
  14. Jansson, Per & Vredin, Anders, 2003. "Forecast-Based Monetary Policy: The Case of Sweden," International Finance, Wiley Blackwell, Wiley Blackwell, vol. 6(3), pages 349-80, Winter.
  15. Berg, Claes & Jansson, Per & Vredin, Anders, 2004. "How Useful are Simple Rules for Monetary Policy? The Swedish Experience," Working Paper Series 169, Sveriges Riksbank (Central Bank of Sweden).
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Cited by:
  1. Svensson, Lars E O, 2009. "Transparency under Flexible Inflation Targeting: Experiences and Challenges," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7213, C.E.P.R. Discussion Papers.
  2. Bedri Kamil Onur Tas, 2007. "Inflation Targeting as a Signalling Mechanism," Working Papers, TOBB University of Economics and Technology, Department of Economics 0701, TOBB University of Economics and Technology, Department of Economics.

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