Inflation-Forecast Targeting: Applying the Principle of Transparency

57 Pages Posted: 21 Jul 2015

See all articles by Kevin Clinton

Kevin Clinton

Government of Canada - Bank of Canada

Charles Freedman

Government of Canada - Bank of Canada; National Bureau of Economic Research (NBER)

Michel Juillard

Banque de France - Economic Study and Research Division

Ondra Kamenik

International Monetary Fund (IMF)

Douglas Laxton

International Monetary Fund (IMF) - Research Department

Hou Wang

International Monetary Fund (IMF)

Date Written: June 2015

Abstract

Many central banks in emerging and advanced economies have adopted an inflation-forecast targeting (IFT) approach to monetary policy, in order to successfully establish a stable, low-inflation environment. To support policy making, each has developed a structured system of forecasting and policy analysis appropriate to its needs. A common component is a model-based forecast with an endogenous policy interest rate path. The approach is characterized, among other things, by transparent communications - some IFT central banks go so far as to publish their policy interest rate projection. Some elements of this regime, although a work still in progress, are worthy of consideration by central banks that have not yet officially adopted full-fledged inflation targeting.

Keywords: Inflation targeting, Monetary policy, Transparency, Central banks, Economic forecasting, Econometric models, Optimal Control, interest, interest rate, economy, expectations, interest rates, deflation, trade, exchange

JEL Classification: E30, E31, E58

Suggested Citation

Clinton, Kevin and Freedman, Charles and Juillard, Michel and Kamenik, Ondra and Laxton, Douglas and Wang, Hou, Inflation-Forecast Targeting: Applying the Principle of Transparency (June 2015). IMF Working Paper No. 15/132. Available at SSRN: https://ssrn.com/abstract=2633917

Kevin Clinton (Contact Author)

Government of Canada - Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada
613-782-8766 (Phone)
613-782 7508 (Fax)

Charles Freedman

Government of Canada - Bank of Canada ( email )

234 Wellington Street
Ontario, Ontario K1A 0G9
Canada
613 782-8045 (Phone)
613 782-7003 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Michel Juillard

Banque de France - Economic Study and Research Division ( email )

31, rue Croix des Petits Champs
75049 Paris Cedex 01
FRANCE

Ondra Kamenik

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Douglas Laxton

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Hou Wang

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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