Scandinavian Working Papers in Economics

Seminar Papers,
Stockholm University, Institute for International Economic Studies

No 615: Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets

Lars E.O. Svensson ()
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Lars E.O. Svensson: Institute for International Economic Studies, Stockholm University, Postal: Stockholm University, S-109 61 Stockholm, Sweden

Abstract: 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'.

Keywords: Inflation targeting; inflation forecast targeting; intermediate target

JEL-codes: E42; E52; E58

38 pages, November 6, 1997

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