Policy Rules for Inflation Targeting

Glenn D. Rudebusch, Lars E. O. Svensson

NBER Working Paper No. 6512
Issued in April 1998
NBER Program(s):   IFM   ME

Policy rules that are consistent with inflation targeting are examined in a small macroeconomic model of the US economy. We compare the properties and outcomes of explicit instrument rules' as well as targeting rules.' The latter, which imply implicit instrument rules, may be closer to actual operating procedures of inflation-targeting central banks. We find that inflation forecasts are central for good policy rules under inflation targeting. Some simple instrument and targeting rules do remarkably well relative to the optimal rule; others, including some that are often used as representing inflation targeting, do less well.

(2132 K)

Published:

• Glenn D. Rudebusch & Lars E. O. Svensson, 1998. "Policy rules for inflation targeting," Proceedings, Federal Reserve Bank of San Francisco, issue Mar. ,
• Monetary Policy Rules, Taylor, John B., ed., Chicago: University of Chicago Press, 1999. ,
• Policy Rules for Inflation Targeting, Glenn Rudebusch, Lars E.O. Svensson, in Monetary Policy Rules (1999), University of Chicago Press
  

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