mechanically, buying and selling bonds in accordance with a Taylor policy rule based on expected inflation. In this setting we show … that stock market returns are much less than one-for-one related to inflation over a one-year holding period, which means …

and the inflation rate without error, then it is typically optimal to respond infinitely strongly to observed deviations … from the central bank's targets. If it observes inflation and the output gap with error, the central bank will temper its … terms of estimated output and inflation then it is optimal to respond infinitely strongly to estimated deviations from the …

nominal rates respond less than one-for-one with inflation. Second, the model significantly alters the output responses to …

Nonetheless, we find that the target criterion--a linear relation that should be maintained between the inflation rate … approximation to optimal policy, even in the presence of variations in credit spreads. Such a "flexible inflation target" can be … equilibrium relation between the policy rate and aggregate expenditure and for the relation between real activity and inflation …

the Taylor principle, also exhibit solutions with explosive inflation that cannot be ruled out by any transversality …

use differences between nowcasts of the output gap and inflation with final, revised estimates of these series to isolate …

multiple solutions in rational expectations (RE) models. In three of these cases--involving inflation forecast targeting, the …

criterion of the kind discussed in familiar proposals for flexible inflation targeting.' Optimal rules, however, require that … do not place nearly as much weight on projections of inflation or output many quarters in the future as occurs under the … current practice of inflation-forecast targeting central banks …