Scandinavian Working Papers in Economics

Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)

No 103: Optimal Horizons for Inflation Targeting

Nicoletta Batini () and Edward Nelson ()
Additional contact information
Nicoletta Batini: Research Advisor, Monetary Policy Committee, Postal: Bank of England, Threadneedle Street, London EC2R 8AH, United Kingdom
Edward Nelson: Monetary Assessment and Strategy Division, Postal: Bank of England, Threadneedle Street, London EC2R 8AH, United Kingdom

Abstract: In this paper we investigate the problem of selecting an optimal horizon for inflation targeting in the United Kingdom. Since there are two key ways of thinking about an optimal horizon, we look at optimal horizons for both of these interpretations. In addition, to see whether our results are robust in the face of model uncertainty, we compute optimal horizons for two different models with divergent structural and dynamic characteristics.

Keywords: Inflation targeting; Horizon; Optimal policy rules; Simple feedback rules; Target

JEL-codes: E37; E52; E58

42 pages, February 1, 2000

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Published as
Nicoletta Batini and Edward Nelson, (2001), 'Optimal Horizons for Inflation Targeting', Journal of Economic Dynamics and Control, vol 25, no 6-7, pages 891-910

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