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Implementing Optimal Policy through Inflation-Forecast Targeting

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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 determinancy 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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9747.

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Date of creation: Jun 2003
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Publication status: published as Implementing Optimal Policy through Inflation-Forecast Targeting , Lars E.O. Svensson, Michael Woodford. in The Inflation-Targeting Debate , Bernanke and Woodford. 2005
Handle: RePEc:nbr:nberwo:9747

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