Forward-Looking Rules for Monetary Policy

Bank of England Working Paper No. 91

53 Pages Posted: 24 Mar 1999

See all articles by Nicoletta Batini

Nicoletta Batini

International Monetary Fund (IMF)

Andrew Haldane

Bank of England

Multiple version iconThere are 2 versions of this paper

Date Written: 1998

Abstract

This paper evaluates a class of simple policy rules that feed back from expected values of future inflation--inflation forecast-based rules. The rules are assessed by how well they perform when the economy is buffeted by a combination of shocks, whose distribution is drawn from the Bank of England forecasting model. It is shown that inflation forecast-based rules confer some real advantages: they embody explicitly monetary transmission lags; they potentially embody all information useful for predicting future inflation; and they can achieve a high degree of output smoothing. In the tests conducted these rules prove more efficient at minimizing inflation and output variability than standard Taylor rules, and almost as efficient as fully optimal rules.

JEL Classification: E52, E58

Suggested Citation

Batini, Nicoletta and Haldane, Andrew, Forward-Looking Rules for Monetary Policy (1998). Bank of England Working Paper No. 91. Available at SSRN: https://ssrn.com/abstract=147549 or http://dx.doi.org/10.2139/ssrn.147549

Nicoletta Batini (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Andrew Haldane

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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