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Institute for International Economic Studies, Stockholm University Seminar Papers, Institute for International Economic Studies, Stockholm University

No 625:
Inflation Targeting: Some Extensions

Lars E.O. Svensson ()

Abstract: Previous analysis of the implementation of inflation targeting is extended to monetary policy responses to different shocks, consequences of model uncertainty, effects of interest rate smoothing and stabilization, a comparison with nominal GDP targeting, and implications of forward-looking behavior. Model uncertainty, output stabilization, and interest rate stabilization or smoothing all call for a more gradual adjustment of the conditional inflation forecast toward the inflation target. The conditional inflation forecast is the natural intermediate target during inflation targeting.

Keywords: inflation targeting; monetary policy; shocks; model uncertainty; interest rate smoothing; conditional inflation forecast; (follow links to similar papers)

JEL-Codes: E42; E52; E58; (follow links to similar papers)

44 pages, October 31, 1997

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