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How Inflation Targeters (Can) Deal with Uncertainty

  • Kateøina Šmídková


    (Czech National Bank, Prague)

The paper argues that a well-designed methodology for dealing with uncertainty improves the quality of interest-rate decisions taken by inflation targeters. A well-planned methodology is also more easily communicated to the general public, and the subsequent greater transparency makes inflation targeting more efficient. Therefore, it is relevant for an inflation targeter to consult with or consider information from other inflation targeters, researchers, and relevant decision makers when designing or improving upon their methodology. The paper also summarizes the results of a recent survey on methods for dealing with uncertainty for inflation targeters. The results are presented in a framework designed in line with decision analysis. The paper summarizes which methods are commonly used by inflation targeters and what lessons can be learnt from economic research and from decision makers.

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Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

Volume (Year): 55 (2005)
Issue (Month): 7-8 (July)
Pages: 316-332

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Handle: RePEc:fau:fauart:v:55:y:2005:i:7-8:p:316-332
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  1. Katerina Smidkova, 2003. "Targeting Inflation under Uncertainty: Policy Makers’ Perspective," Macroeconomics 0304003, EconWPA.
  2. Svensson, L-E-O, 1996. "Inflation Forecast Targeting : Implementaing and Monitoring Inflation Targets," Papers 615, Stockholm - International Economic Studies.
  3. Geraats, Petra M., 2001. "Why adopt transparency? The publication of central bank forecasts," Working Paper Series 0041, European Central Bank.
  4. Katerina Smidkova, 2003. "Koruna Exchange Rate Turbulence in May 1997," Macroeconomics 0303020, EconWPA.
  5. Nicoletta Batini & Andrew G Haldane, 1999. "Forward-looking rules for monetary policy," Bank of England working papers 91, Bank of England.
  6. Cogley, Timothy & Morozov, Sergei & Sargent, Thomas J., 2005. "Bayesian fan charts for U.K. inflation: Forecasting and sources of uncertainty in an evolving monetary system," Journal of Economic Dynamics and Control, Elsevier, vol. 29(11), pages 1893-1925, November.
  7. J. Tetlow, Robert & von zur Muehlen, Peter, 2001. "Robust monetary policy with misspecified models: Does model uncertainty always call for attenuated policy?," Journal of Economic Dynamics and Control, Elsevier, vol. 25(6-7), pages 911-949, June.
  8. Alan S. Blinder & John Morgan, 2001. "Are Two Heads Better Than One?: An Experimental Analysis of Group vs. Individual Decisionmaking," Working Papers 130, Princeton University, Department of Economics, Center for Economic Policy Studies..
  9. Christopher A. Sims, 2002. "The Role of Models and Probabilities in the Monetary Policy Process," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(2), pages 1-62.
  10. Katerina Smidkova, 2003. "Methods Available to Monetary Policy Makers to Deal with Uncertainty," Macroeconomics 0310002, EconWPA.
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