The paper extends previous analysis of closed-economy inflation targeting to a small open economy with forward-looking aggregate supply and demand with some microfoundations, and with stylized realistic lags in the different transmission channels for monetary policy. The paper compares targeting...

The recent debate over monetary policy strategies concludes that monetary targeting in practice lead to very similar patterns of central bank behaviour. This raises the question why central banks insist on the strategies they use. In this paper, we develop an answer from political economy. After...

Policy rules that are consistent with inflation targeting are examined in a small macroeconometric model of the US economy. We compare the properties and outcomes of explicit "instrument rules" as well as "targeting rules". The latter, which imply implicit instrument rules, may be closer to...

In recent years a growing consensus has emerged for price stability as the overriding, long-run goal of monetary policy. However, despite this consensus, the following question still remains: how should monetary policy be conducted to achieve the price stability goal? This paper examines the...

The purpose of this paper is to examine the merits of monetary policy rules that utilize as their principal target variable the level or growth rate of some aggregate reasure of nominal spending, such as nominal GDP, rather than a monetary aggregate or an index of inflation (either alone or in...

Inflation targeting is shown to imply inflation forecast targeting : the central bank's inflation forecast becomes an intermediate target. Inflation forecast targeting simplifies both implementaing and monitoring of monetary policy.

In September 1931, Sweden became the first country to make the stabilization of the domestic price level the official goal of its monetary policy, actually the only country that so far has adopted such an explicit price level target. Starting from the issues and concepts familiar from research...

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I examine the "fiscal theory of the price level" according to which "non-Ricardian" policy and predetermined nominal government debt fiscally determine prices. I argue that the non-Ricardian policy assumption and, by implication, fiscal price level determination are inconsistent with a rational...

By driving a wedge between the marginal returns to real and financial capital, inflation distorts production. The elimination of this distortion increases both the level and rate of growth of output. First, increased price stability improves the utilization of capital and thus increases the...