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Policy Rules for Inflation Targeting

In: Monetary Policy Rules

  • Glenn Rudebusch
  • Lars E.O. Svensson

Policy rules that are consistent with inflation targeting are examined in a small macroeconometric model of the US economy. We compare the properties and outcomes of explicit 'instrument rules' as well as 'targeting rules'. The latter, which imply implicit instrument rules, may be closer to actual operating procedures of inflation-targeting central banks. We find that inflation forecasts are central for good policy rules under inflation targeting. Some simple instrument and targeting rules do remarkably well relative to the optimal rule; others, including some that are often used as representing inflation targeting, do less well.

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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, May.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 7417.
    Handle: RePEc:nbr:nberch:7417
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