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Implementing Optimal Policy through Inflation-Forecast Targeting

Svensson, Lars E. O.; Woodford, Michael

We examine to what extent variants of inflation-forecast targeting can avoid stabilization bias, incorporate history-dependence, and achieve determinacy of equilibrium, so as to reproduce a socially optimal equilibrium. We also evaluate these variants in terms of the transparency of the connection with the ultimate policy goals and the robustness to model perturbations. A suitably designed inflation-forecast targeting rule can achieve the social optimum and at the same time have a more transparent connection to policy goals and be more robust than competing instrument rules.

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NBER Working Paper Series

More About This Work

Academic Units
Economics
Publisher
National Bureau of Economic Research
Published Here
November 26, 2013