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Policy Rules for Inflation Targeting

  • Svensson, Lars E.O.

    ()

    (Institute for International Economic Studies, Stockholm University)

  • Rudebusch , Glenn

    ()

    (Federal Reserve Bank of San Francisco)

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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Paper provided by Stockholm University, Institute for International Economic Studies in its series Seminar Papers with number 637.

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Length: 51 pages
Date of creation: 21 Apr 1998
Date of revision:
Handle: RePEc:hhs:iiessp:0637
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Institute for International Economic Studies, Stockholm University, S-106 91 Stockholm, Sweden

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Fax: +46-8-161443
Web page: http://www.iies.su.se/

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