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Some Lessons from Six Years of Practical Inflation Targeting

  • Svensson, Lars E O

My lessons from six years of practical policy-making include (1) being clear about and not deviating from the mandate of flexible inflation targeting (price stability and the highest sustainable employment), including keeping average inflation over a longer period on target; (2) not adding household debt as a new (intermediate) target variable, in addition to inflation and unemployment – not “leaning against the wind,” which is counterproductive, but leaving any problems with household debt to financial policy; (3) using a two-step algorithm to implement “forecast targeting”; (4) using four-panel graphs to evaluate monetary policy ex ante (in real time) and ex post (after the fact); (5) taking a credible inflation target and a resulting downward-sloping Phillips curve into account by keeping average inflation over a longer period on target; and (6) not confusing monetary and financial policy but using monetary policy to achieve the monetary-policy objectives and financial policy to maintain financial stability, with each policy taking into account the conduct of the other.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9756.

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Date of creation: Nov 2013
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Handle: RePEc:cpr:ceprdp:9756
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  1. Svensson, L.E.O., 1998. "Inflation Targeting as a Monetary Policy Rule," Papers 646, Stockholm - International Economic Studies.
  2. Christopher J. Erceg & Andrew Levin, 2013. "Labor Force Participation and Monetary Policy in the Wake of the Great Recession," IMF Working Papers 13/245, International Monetary Fund.
  3. Eric M. Leeper & Tao Zha, 2002. "Modest Policy Interventions," NBER Working Papers 9192, National Bureau of Economic Research, Inc.
  4. Douglas W. Diamond & Raghuram Rajan, 2011. "Illiquid Banks, Financial Stability, and Interest Rate Policy," NBER Working Papers 16994, National Bureau of Economic Research, Inc.
  5. Nessen, Marianne & Vestin, David, 2005. "Average Inflation Targeting," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(5), pages 837-63, October.
  6. RUGE-MURCIA, Francisco J., 2009. "Do Inflation-Targeting Central Banks Implicitly Target the Price Level?," Cahiers de recherche 2009-15, Universite de Montreal, Departement de sciences economiques.
  7. William R. White, 2006. "Is price stability enough?," BIS Working Papers 205, Bank for International Settlements.
  8. Lars E.O. Svensson & Stefan Laseen, 2009. "Anticipated Alternative Instrument-Rate Paths in Policy Simulations," 2009 Meeting Papers 788, Society for Economic Dynamics.
  9. Lars E O Svensson, 2005. "Monetary Policy with Judgment: Forecast Targeting," International Journal of Central Banking, International Journal of Central Banking, vol. 1(1), May.
  10. Matteo Iacoviello & Stefano Neri, 2008. "Housing market spillovers: Evidence from an estimated DSGE model," Temi di discussione (Economic working papers) 659, Bank of Italy, Economic Research and International Relations Area.
  11. Kenneth Kuttner, 2012. "Low Interest Rates and Housing Bubbles: Still No Smoking Gun," Department of Economics Working Papers 2012-01, Department of Economics, Williams College.
  12. Katrin Assenmacher-Wesche & Stefan Gerlach, 2010. "Monetary policy and financial imbalances: facts and fiction," Economic Policy, CEPR;CES;MSH, vol. 25, pages 437-482, 07.
  13. Poterba, James M, 1984. "Tax Subsidies to Owner-occupied Housing: An Asset-Market Approach," The Quarterly Journal of Economics, MIT Press, vol. 99(4), pages 729-52, November.
  14. Michael Woodford, 2007. "The Case for Forecast Targeting as a Monetary Policy Strategy," Journal of Economic Perspectives, American Economic Association, vol. 21(4), pages 3-24, Fall.
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