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Policy rules for inflation targeting

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  • Glenn D. Rudebusch
  • Lars E. O. Svensson

Abstract

Policy rules that are consistent with inflation targeting are examined in a small macroeconometric model of the US economy. We compare the properties and outcomes of explicit "instrument rules" as well as "targeting rules." The latter, which imply implicit instrument rules, may be closer to actual operating procedures of inflation-targeting central banks. We find that inflation forecasts are central for good policy rules under inflation targeting. Some simple instrumental and targeting rules do remarkably well relative to the optimal rule; others, including some that are often used as representing inflation targeting, do less well.

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Bibliographic Info

Paper provided by Federal Reserve Bank of San Francisco in its series Working Papers in Applied Economic Theory with number 98-03.

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Date of creation: 1998
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Publication status: Published in Monetary policy rules / edited by John B. Taylor. University of Chicago Press, 1999 (NBER Conference Report)
Handle: RePEc:fip:fedfap:98-03

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Keywords: Monetary policy ; Inflation (Finance) ; Econometric models ; Banks and banking; Central;

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References

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