DP1511 Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets
|Author(s):||Lars E.O. Svensson|
|Publication Date:||November 1996|
|Keyword(s):||Monetary Policy Regimes|
|JEL(s):||E42, E52, E58|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=1511|
Inflation targeting is shown to imply inflation forecast targeting; the central bank?s inflation forecast becomes an explicit intermediate target. Inflation forecast targeting simplifies both implementation and monitoring of monetary policy. The weight on output stabilization determines how quickly the inflation forecast is adjusted towards the inflation target. Money growth or exchange rate targeting is generally inferior than inflation targeting and leads to higher inflation variability. Commitment to ?target rules? may be better than commitment to ?instrument rules?.