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Inflation Targeting: Some Extensions

  • Svensson, Lars E O

Previous analyses of the implementation of inflation targeting are extended to monetary policy responses to different shocks, consequences of model uncertainty, and effects of interest rate smoothing and stabilization. Model uncertainty, output stabilization, and interest rate stabilization or smoothing all call for a more gradual adjustment of the conditional inflation forecast toward the inflation target. The conditional inflation forecast is the natural intermediate target during inflation targeting. The optimal way of reacting to shocks is hence to check how they affect the inflation forecast and then take the appropriate action. Copyright 1999 by The editors of the Scandinavian Journal of Economics.

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Article provided by Wiley Blackwell in its journal Scandinavian Journal of Economics.

Volume (Year): 101 (1999)
Issue (Month): 3 (September)
Pages: 337-61

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Handle: RePEc:bla:scandj:v:101:y:1999:i:3:p:337-61
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