The Case for Forecast Targeting as a Monetary Policy Strategy
At central banks around the world, including the Bank of England, Sweden's Riksbank, Norway's Norges Bank, and the Reserve Bank of New Zealand, policy is conducted on the basis of "inflation-forecast targeting": the central bank constructs quantitative projections of the economy's expected future evolution based on the way in which it intends to control short-term interest rates, and public discussion of those projections plays a critical role in justifying the banks' conduct of monetary policy to the public. What accounts for the appeal of this approach? Should it be adopted more widely or more explicitly? I review the long-running debate between proponents of monetary rules and proponents of discretionary monetary policy and argue that inflation-forecast targeting represents a powerful synthesis of the two approaches. I explore some common questions that arise about inflation-forecast targeting and consider how the U.S. Federal Reserve might move toward an explicit policy of inflation-forecast targeting.
Volume (Year): 21 (2007)
Issue (Month): 4 (Fall)
|Contact details of provider:|| Web page: https://www.aeaweb.org/jep/|
More information through EDIRC
|Order Information:||Web: https://www.aeaweb.org/subscribe.html|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Estrella, Arturo & Mishkin, Frederic S., 1997.
"Is there a role for monetary aggregates in the conduct of monetary policy?,"
Journal of Monetary Economics,
Elsevier, vol. 40(2), pages 279-304, October.
- Arturo Estrella & Frederic S. Mishkin, 1996. "Is There a Role for Monetary Aggregates in the Conduct of Monetary Policy?," NBER Working Papers 5845, National Bureau of Economic Research, Inc.
- Lars E. O. Svensson & Michael Woodford, 2000.
"Indicator variables for optimal policy,"
Federal Reserve Bank of San Francisco.
- Svensson, Lars & Woodford, Michael, 2000. "Indicator Variables for Optimal Policy," Seminar Papers 688, Stockholm University, Institute for International Economic Studies.
- Lars E.O. Svensson & Michael Woodford, 2000. "Indicator Variables for Optimal Policy," NBER Working Papers 7953, National Bureau of Economic Research, Inc.
- Svensson, Lars E. O. & Woodford, Michael, 2000. "Indicator variables for optimal policy," Working Paper Series 0012, European Central Bank.
- Svensson, Lars E. O., 1998.
"Inflation targeting as a monetary policy rule,"
CFS Working Paper Series
1998/16, Center for Financial Studies (CFS).
- Svensson, Lars E O, 1998. "Inflation Targeting as a Monetary Policy Rule," CEPR Discussion Papers 1998, C.E.P.R. Discussion Papers.
- Svensson, Lars E.O., 1998. "Inflation Targeting as a Monetary Policy Rule," Seminar Papers 646, Stockholm University, Institute for International Economic Studies.
- Lars E.O. Svensson, 1998. "Inflation Targeting as a Monetary Policy Rule," NBER Working Papers 6790, National Bureau of Economic Research, Inc.
- Svensson, L.E.O., 1998. "Inflation Targeting as a Monetary Policy Rule," Papers 646, Stockholm - International Economic Studies.
- Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 241-54, April.
- Luca Benati, 2006.
"UK monetary regimes and macroeconomic stylised facts,"
Bank of England working papers
290, Bank of England.
- Luca Benati, 2005. "U.K. Monetary Regimes and Macroeconomic Stylised Facts," Computing in Economics and Finance 2005 107, Society for Computational Economics.
- Kosuke Aoki & Kalin Nikolov, 2004.
"Rule-based monetary policy under central bank learning,"
Bank of England working papers
235, Bank of England.
- Kosuke Aoki & Kalin Nikolov, 2006. "Rule-Based Monetary Policy under Central Bank Learning," NBER Chapters, in: NBER International Seminar on Macroeconomics 2004, pages 145-195 National Bureau of Economic Research, Inc.
- Leitemo, Kai, 2003. " Targeting Inflation by Constant-Interest-Rate Forecasts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(4), pages 609-26, August.
- Jansson, Per & Vredin, Anders, 2003. "Forecast-Based Monetary Policy: The Case of Sweden," International Finance, Wiley Blackwell, vol. 6(3), pages 349-80, Winter.
- Benjamin M. Friedman & Kenneth N. Kuttner, 1996.
"A Price Target for U.S. Monetary Policy? Lessons from the Experience with Money Growth Targets,"
Brookings Papers on Economic Activity,
Economic Studies Program, The Brookings Institution, vol. 27(1), pages 77-146.
- Benjamin M. Friedman & Kenneth N. Kuttner, 1996. "A price target for U.S. monetary policy? Lessons from the experience with money growth targets," Working Paper Series, Macroeconomic Issues WP-96-14, Federal Reserve Bank of Chicago.
- Marc Giannoni & Michael Woodford, 2004.
"Optimal Inflation-Targeting Rules,"
in: The Inflation-Targeting Debate, pages 93-172
National Bureau of Economic Research, Inc.
- Gorodnichenko, Yuriy & Shapiro, Matthew D., 2007.
"Monetary policy when potential output is uncertain: Understanding the growth gamble of the 1990s,"
Journal of Monetary Economics,
Elsevier, vol. 54(4), pages 1132-1162, May.
- Yuriy Gorodnichenko & Matthew D. Shapiro, 2006. "Monetary Policy When Potential Output is Uncertain: Understanding the Growth Gamble of the 1990s," NBER Working Papers 12268, National Bureau of Economic Research, Inc.
- Michael Woodford, 2005.
"Central Bank Communication and Policy Effectiveness,"
NBER Working Papers
11898, National Bureau of Economic Research, Inc.
- Michael Woodford, 2005. "Central bank communication and policy effectiveness," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Aug, pages 399-474.
- Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
When requesting a correction, please mention this item's handle: RePEc:aea:jecper:v:21:y:2007:i:4:p:3-24. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Voros)or (Michael P. Albert)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.