Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets
38 Pages Posted: 20 Jan 1997
Date Written: October 1996
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 to inflation targeting and leads to higher inflation variability. Commitment to "target rules" may be more effective than commitment to "instrument rules."
JEL Classification: E52, E58
Suggested Citation: Suggested Citation