Optimal inflation Targeting: Further Developments of Inflation Targeting
In: Monetary Policy under Inflation Targeting
AbstractThe 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 âdistribution forecast targetingâ rather than the more restrictive âmean forecast targetingâ under the assumption of approximate certainty equivalence.
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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.
Other versions of this item:
- Lars Svensson, 2006. "Optimal Inflation Targeting: Further Developments of Inflation Targeting," Working Papers Central Bank of Chile 403, Central Bank of Chile.
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