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Forward-Looking Rules for Monetary Policy

In: Monetary Policy Rules

  • Nicoletta Batini
  • Andrew Haldane

This paper evaluates a class of simple policy rules that feed back from expected values of future inflation--inflation forecast-based rules. The rules are assessed by how well they perform when the economy is buffeted by a combination of shocks, whose distribution is drawn from the Bank of England forecasting model. It is shown that inflation forecast-based rules confer some real advantages: they embody explicitly monetary transmission lags; they potentially embody all information useful for predicting future inflation; and they can achieve a high degree of output smoothing. In the tests conducted these rules prove more efficient at minimising inflation and output variability than standard Taylor rules, and almost as efficient as fully optimal rules.

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This chapter was published in:
  • John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1, October.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 7416.
    Handle: RePEc:nbr:nberch:7416
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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