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Policy Rules for Inflation Targeting

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  • Svensson, Lars E.O.

    (Institute for International Economic Studies, Stockholm University)

  • Rudebusch , Glenn

    (Federal Reserve Bank of San Francisco)

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 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.

Suggested Citation

  • Svensson, Lars E.O. & Rudebusch , Glenn, 1998. "Policy Rules for Inflation Targeting," Seminar Papers 637, Stockholm University, Institute for International Economic Studies.
    • Handle: RePEc:hhs:iiessp:0637
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    Keywords

    inflation targeting;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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