NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Implementing Optimal Policy through Inflation-Forecast Targeting

Lars E. O. Svensson, Michael Woodford

NBER Working Paper No. 9747
Issued in June 2003
NBER Program(s):   EFG   ME

We examine to what extent variants of inflation-forecast targeting can avoid stabilization bias, incorporate history-dependence, and achieve determinancy 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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Document Object Identifier (DOI): 10.3386/w9747

Published: Implementing Optimal Policy through Inflation-Forecast Targeting, Lars E.O. Svensson, Michael Woodford. in The Inflation-Targeting Debate, Bernanke and Woodford. 2005

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