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?.