We propose a novel framework to gauge the credibility of central banks' commitment to an inflation-targeting regime. Our framework combines survey data on macroeconomic forecasts with high-frequency financial market data to understand how inflation targeting makes economic agents change their...

Refet Gürkaynak, Brian Sack, and Eric Swanson (2005) provide empirical evidence that long forward nominal rates are overly sensitive to monetary policy shocks, and that this is consistent with a model where long-term inflation expectations are not anchored because agents must infer the central...

In the first stage of the crisis, the Federal Reserve (Fed) rapidly embarked on interest rate cuts followed by several rounds of substantial quantitative easing. However, the marked monetary easing and the persistently low interest rates triggered mounting fears of inflation, calling into...

This paper analyses the implications of cost-push shocks for the optimal choice of monetary policy target in an two-country sticky-price model. In addition to cost-push shocks, each country is subject to labour-supply and money-demand shocks. It is shown that the fully optimal coordinated policy...

March 2011 marked the introduction of the MNB’s Monetary Policy Model (MPM), representing a paradigm shift in both inflation forecasting and monetary policy decision support. In contrast to the previous conditional projections, the MPM offers an endogenous definition for both the policy rate...

The medium-term inflation target set in summer 2005 and taking effect in January 2007 brings fundamental changes in the Hungarian inflation targeting mechanism. Whereas formerly the government and the central bank used to set a new inflation target each year, a 3-percent medium-term target will...

During the current crisis, the question of how central banks should set their monetary policies after the key policy rate has reached the zero lower bound has provoked heated debates. One idea that has recently received attention is ‘nominal GDP targeting’, which many people believe is worth...

This study attempts to explain in an understandable manner that the central bank’s effort to keep inflation low is not an end in itself, but ultimately serves the interests of social welfare. We attempt to substantiate this argument on the basis of economic theory, based on the logic of New...