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Interest Rate Forecasts in Inflation Targeting Open-Economies

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  • Alessandro Flamini

    () (Department of Economics and Management, University of Pavia)

Abstract

Can the choice of the target inflation index in an open-economy affect the central bank ability to forecast the interest rate path? Adopting a New Keynesian set up where the central bank faces real-world model uncertainty, this paper shows that targeting the domestic price index instead of the consumer price index substantially improves the accuracy in the distribution forecast of the interest rate. The policy implication is that adopting the domestic price index may increase the central bank's convenience of publishing the expected interest rate path.
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Suggested Citation

  • Alessandro Flamini, 2012. "Interest Rate Forecasts in Inflation Targeting Open-Economies," DEM Working Papers Series 027, University of Pavia, Department of Economics and Management.
  • Handle: RePEc:pav:demwpp:027
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    References listed on IDEAS

    as
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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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