Inflation Indicators and Inflation Policy
In: NBER Macroeconomics Annual 1995, Volume 10
In recent years, central bankers throughout the world have advocated that monetary policy shift toward inflation targeting. Recent actions in the U.S. serve to highlight the desire of the Federal Reserve to keep inflation both low and stable, while downplaying the likely output and employment consequences. But control of inflation requires both that one be able to forecast the future path of the price level and that one have estimates of what impact policy changes have on that path. Unfortunately, inflation is very difficult to forecast at even very near horizons. This is true because the relationship of candidate inflation indicators to inflation is neither very strong nor very stable. Beyond this, the relationship between monetary policy instruments, such as the Federal Funds Rate, and inflation also varies substantially over time and cannot be estimated precisely. Construction of policy rules can take these difficulties into account. Several rules are examined, and they have the following interesting properties. First, since prices take time to respond to all types of impulses, the object of price stability implies raising the Federal Funds Rate immediately following a shock, rather than waiting for prices to rise before acting. Finally, comparison of the results of price level targeting with nominal income targeting suggests that the difficulties inherent in forecasting and controlling the former provide an argument for focusing on the latter.
(This abstract was borrowed from another version of this item.)
|This chapter was published in: ||This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number
11019.||Handle:|| RePEc:nbr:nberch:11019||Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
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.:
- Hall, R.E. & Mankiw, N.G., 1993.
"Nominal Income Targeting,"
Harvard Institute of Economic Research Working Papers
1650, Harvard - Institute of Economic Research.
- Newey, Whitney K & West, Kenneth D, 1987.
"A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix,"
Econometric Society, vol. 55(3), pages 703-08, May.
- Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
- Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
- Steven Strongin, 1992. "The identification of monetary policy disturbances: explaining the liquidity puzzle," Working Paper Series, Macroeconomic Issues 92-27, Federal Reserve Bank of Chicago.
- Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 1994.
"The effects of monetary policy shocks: evidence from the Flow of Funds,"
Working Paper Series, Macroeconomic Issues
94-2, Federal Reserve Bank of Chicago.
- Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 1994. "The effects of monetary policy shocks: evidence from the flow of funds," Proceedings, Federal Reserve Bank of Dallas, issue Apr.
- Christiano, Lawrence J & Eichenbaum, Martin & Evans, Charles, 1996. "The Effects of Monetary Policy Shocks: Evidence from the Flow of Funds," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 16-34, February.
- Martin Feldstein & James H. Stock, 1994.
"The Use of a Monetary Aggregate to Target Nominal GDP,"
in: Monetary Policy, pages 7-69
National Bureau of Economic Research, Inc.
- Martin Feldstein & James H. Stock, 1993. "The Use of Monetary Aggregate to Target Nominal GDP," NBER Working Papers 4304, National Bureau of Economic Research, Inc.
- Hansen, Bruce E, 1997.
"Approximate Asymptotic P Values for Structural-Change Tests,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 15(1), pages 60-67, January.
- Bruce E. Hansen, 1995. "Approximate Asymptotic P-Values for Structural Change Tests," Boston College Working Papers in Economics 297., Boston College Department of Economics.
- Tom Doan, . "RATS programs to replicate Hansen's examples of Andrews-Ploberger test," Statistical Software Components RTZ00087, Boston College Department of Economics.
- Michael F. Bryan & Stephen G. Cecchetti, 1994.
"Measuring Core Inflation,"
in: Monetary Policy, pages 195-219
National Bureau of Economic Research, Inc.
- Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, vol. 62(4), pages 540-52, September.
- Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 1994. "The Effects of Monetary Policy Shocks: Some Evidence from the Flow of Funds," NBER Working Papers 4699, National Bureau of Economic Research, Inc.
- Caskey, John P, 1985. "Modeling the Formation of Price Expectations: A Bayesian Approach," American Economic Review, American Economic Association, vol. 75(4), pages 768-76, September.
- Hallman, Jeffrey J & Porter, Richard D & Small, David H, 1991. "Is the Price Level Tied to the M2 Monetary Aggregate in the Long Run?," American Economic Review, American Economic Association, vol. 81(4), pages 841-58, September.
- Michael Woodford, 1994. "Nonstandard Indicators for Monetary Policy: Can Their Usefulness Be Judged from Forecasting Regressions?," NBER Chapters, in: Monetary Policy, pages 95-115 National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberch:11019. 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: ()
If references are entirely missing, you can add them using this form.