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Implementing Optimal Policy through Inflation-Forecast Targeting (2003)
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@MISC{Svensson03implementingoptimal,
author = {Lars E. O. Svensson and Michael Woodford},
title = {Implementing Optimal Policy through Inflation-Forecast Targeting},
year = {2003}
}
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Abstract
We examine to what extent variants of inflation-forecast targeting can avoid stabilization bias, incorporate history-dependence, and achieve determinacy 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.
