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Inflation Targeting with NAIRU Uncertainty and Endogenous Policy Credibility

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  • Peter Isard
  • Douglas Laxton
  • Ann-Charlotte Eliasson

Abstract

Stochastic simulations are employed to compare performance of monetary policy rules in linear and nonlinear variants of a small macro model with NAIRU uncertainity under different assumptions about the way inflation expectations are formed. Cases in which policy credibility is ignored or treated as exogenous are distinguished from cases in which credibility and inflation expectations respond endogenuously policy credibility strengthens the case for forward-looking inflation forecast based rules relative to backward-looking Taylor rules.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 01/7.

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Length: 41
Date of creation: 01 Jan 2001
Date of revision:
Handle: RePEc:imf:imfwpa:01/7

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Keywords: Inflation targeting; inflation; monetary policy; inflation rate; monetary policy rules; monetary authorities; real interest rate; aggregate demand; monetary fund; nominal interest rate; rate of inflation; price stability; rates of inflation; inflation target; monetary policy transmission mechanism; macroeconomic performance; macroeconomic stability; monetary economics; low inflation; inflation rates; high inflation; central bank; monetary policy rule; monetary policy strategies; measure of inflation; steady-state inflation; actual inflation; average inflation; average inflation rate; price level; real interest rates; inflation forecasts; monetary authority; average rate of inflation; monetary policy instrument; monetary policy instruments; monetary conditions; inflation process; monetary policy reaction functions; inflation targeting framework; price inflation; monetary policy strategy; monetary target; inflation dynamics; inflationary expectations; tight monetary policy; nominal interest rates;

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References

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