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Policy rules for inflation targeting

Author

Listed:
  • Glenn D. Rudebusch
  • Lars E. O. Svensson

Abstract

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 instrumental 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.

Suggested Citation

  • Glenn D. Rudebusch & Lars E. O. Svensson, 1998. "Policy rules for inflation targeting," Working Papers in Applied Economic Theory 98-03, Federal Reserve Bank of San Francisco, revised 1998.
  • Handle: RePEc:fip:fedfap:98-03
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