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Implementing Optimal Policy through Inflation-Forecast Targeting

In: The Inflation-Targeting Debate

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  • Lars E.O. Svensson
  • Michael Woodford

Abstract

We examine to what extent variants of inflation-forecast targeting can avoid stabilization bias, incorporate history-dependence, and achieve determinacy 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.

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This chapter was published in:

  • Ben S. Bernanke & Michael Woodford, 2004. "The Inflation-Targeting Debate," NBER Books, National Bureau of Economic Research, Inc, number bern04-1, October.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 9556.

    Handle: RePEc:nbr:nberch:9556

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