In‡ation Forecast Targeting: Implementing and Monitoring In‡ation Targets

In‡ation targeting is shown to imply in‡ation forecast targeting: the central bank’s in‡ation forecast becomes an explicit intermediate target. In‡ation forecast targeting simpli…es both implementation and monitoring of monetary policy. The weight on output stabilization determines how quickly the in‡ation forecast is adjusted towards the in‡ation target. Money growth or exchange rate targeting is generally inferior than in‡ation targeting and leads to higher in‡ation variability. Commitment to ‘target rules’ may be better than commitment to ‘instrument rules’. JEL classi…cation: E42, E52, E58

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