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Optimal Horizons for Inflation Targeting

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Author Info

  • Batini, Nicoletta

    ()
    (Research Advisor, Monetary Policy Committee)

  • Nelson, Edward

    ()
    (Monetary Assessment and Strategy Division)

Abstract

In this paper we investigate the problem of selecting an optimal horizon for inflation targeting in the United Kingdom. Since there are two key ways of thinking about an optimal horizon, we look at optimal horizons for both of these interpretations. In addition, to see whether our results are robust in the face of model uncertainty, we compute optimal horizons for two different models with divergent structural and dynamic characteristics.

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Bibliographic Info

Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 103.

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Length: 42 pages
Date of creation: 01 Feb 2000
Date of revision:
Publication status: Published in Journal of Economic Dynamics and Control, 2001, pages 891-910.
Handle: RePEc:hhs:rbnkwp:0103

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Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Phone: 08 - 787 00 00
Fax: 08-21 05 31
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Web page: http://www.riksbank.com/
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Related research

Keywords: Inflation targeting; Horizon; Optimal policy rules; Simple feedback rules; Target;

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References

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  1. Svensson, L.E.O., 1998. "Inflation Targeting as a Monetary Policy Rule," Papers, Stockholm - International Economic Studies 646, Stockholm - International Economic Studies.
  2. Glenn D. Rudebusch, 2000. "Assessing nominal income rules for monetary policy with model and data uncertainty," Working Paper Series, Federal Reserve Bank of San Francisco 2000-03, Federal Reserve Bank of San Francisco.
  3. Robert King & Alexander L. Wolman, 1999. "What Should the Monetary Authority Do When Prices Are Sticky?," NBER Chapters, National Bureau of Economic Research, Inc, in: Monetary Policy Rules, pages 349-404 National Bureau of Economic Research, Inc.
  4. Bennett T. McCallum & Edward Nelson, 2000. "Nominal Income Targeting in an Open-Economy Optimizing Model," NBER Working Papers 6675, National Bureau of Economic Research, Inc.
  5. Fuhrer, Jeffrey C, 1997. "The (Un)Importance of Forward-Looking Behavior in Price Specifications," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 29(3), pages 338-50, August.
  6. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 1994. "The effects of monetary policy shocks: evidence from the flow of funds," Proceedings, Federal Reserve Bank of Dallas, Federal Reserve Bank of Dallas, issue Apr.
  7. Glenn D. Rudebusch & Lars E. O. Svensson, 1998. "Policy Rules for Inflation Targeting," NBER Working Papers 6512, National Bureau of Economic Research, Inc.
  8. Nicoletta Batini & Andrew G Haldane, 1999. "Forward-looking rules for monetary policy," Bank of England working papers, Bank of England 91, Bank of England.
  9. Svensson, L-E-O, 1997. "Inflation Targeting : Some Extensions," Papers, Stockholm - International Economic Studies 625, Stockholm - International Economic Studies.
  10. Lars E.O. Svensson & Michael Woodford, 2004. "Implementing Optimal Policy through Inflation-Forecast Targeting," NBER Chapters, National Bureau of Economic Research, Inc, in: The Inflation-Targeting Debate, pages 19-92 National Bureau of Economic Research, Inc.
  11. Laurence Ball, 1998. "Policy Rules for Open Economies," RBA Research Discussion Papers, Reserve Bank of Australia rdp9806, Reserve Bank of Australia.
  12. Julio J. Rotemberg & Michael Woodford, 1998. "Interest-Rate Rules in an Estimated Sticky Price Model," NBER Working Papers 6618, National Bureau of Economic Research, Inc.
  13. Andrew Levin & Volker Wieland & John Williams, 2000. "The Performance Of Forecast-Based Monetary Policy Rules Under Model Uncertainty," Computing in Economics and Finance 2000, Society for Computational Economics 203, Society for Computational Economics.
  14. Lars E O Svensson, 1996. "Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets," Bank of England working papers, Bank of England 56, Bank of England.
  15. Glenn D. Rudebusch, 1996. "Do measures of monetary policy in a VAR make sense?," Working Papers in Applied Economic Theory, Federal Reserve Bank of San Francisco 96-05, Federal Reserve Bank of San Francisco.
  16. Arturo Extrella & Jeffrey C. Fuhrer, 1998. "Dynamic inconsistencies: counterfactual implications of a class of rational expectations models," Working Papers, Federal Reserve Bank of Boston 98-5, Federal Reserve Bank of Boston.
  17. Bennett T. McCallum & Edward Nelson, . "An Optimizing IS-LM Specification for Monetary Policy and Business Cycle Analysis," GSIA Working Papers, Carnegie Mellon University, Tepper School of Business 1997-71, Carnegie Mellon University, Tepper School of Business.
  18. Bennett T. McCallum & Edward Nelson, . "Performance of Operational Policy Rules in an Estimated Semi-Classical Structural Model," GSIA Working Papers, Carnegie Mellon University, Tepper School of Business 1998-22, Carnegie Mellon University, Tepper School of Business.
  19. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 39(1), pages 195-214, December.
  20. Rudebusch, Glenn D, 1998. "Do Measures of Monetary Policy in a VAR Make Sense? A Reply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 943-48, November.
  21. Smets, Frank, 2000. "What horizon for price stability," Working Paper Series, European Central Bank 0024, European Central Bank.
  22. Svensson, Lars E O, 1999. "Price-Level Targeting versus Inflation Targeting: A Free Lunch?," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 31(3), pages 277-95, August.
  23. repec:nbr:nberre:0126 is not listed on IDEAS
  24. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 88(1), pages 1-23, February.
  25. Frederic S. Mishkin & Adam S. Posen, 1997. "Inflation targeting: lessons from four countries," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Aug, pages 9-110.
  26. William Poole, 1999. "Monetary policy rules?," Review, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue Mar, pages 3-12.
  27. Friedman, Milton, 1972. "Have Monetary Policies Failed?," American Economic Review, American Economic Association, American Economic Association, vol. 62(2), pages 11-18, May.
  28. Michael Woodford, 1999. "Commentary : how should monetary policy be conducted in an era of price stability?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, pages 277-316.
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