We examine to what extent variants of inflation-forecast targeting can avoid stabilization bias, incorporate history-dependence, and achieve determinancy of equilibrium, so as to reproduce a socially optimal equilibrium. We also evaluate these variants in terms of the transparency of the...

Monetary policy can achieve average inflation equal to a given inflation target and, at best, a good compromise between inflation variability and output-gap variability. Monetary policy cannot completely stabilize either inflation or the output gap. Increased credibility in the form of inflation...

We ask whether recent changes in monetary policy due to the financial crisis will be temporary or permanent. We present evidence from two surveys--one of central bank governors, the other of academic specialists. We find that central banks in crisis countries are more likely to have resorted to...

Policy rules that are consistent with inflation targeting are examined in a small macroeconomic 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 actual...

This paper presents two macro models in which central bank policy has real effects on the supply side of the economy due to credit rationing. In each model, there are two possible regimes, depending on whether credit is or is not rationed. Starting from an unrationed equilibrium, either a large...

This paper presents a model of a multi-sector economy in which each sector is characterized by a different type of wage or price stickiness. The various sectors experience the same exogenous shocks and have the same money supply. The analysis shows demand shocks pose no serious problems for...

In dealing with the expectationists' arguments, I will divide them (somewhat artificially) into two groups. Arguments in the first group, which I call "present disaster" arguments, allege that econometric models err by understating the reaction of inflationary expectations. For example, it is...

The general monetary policy strategy of "forecast targeting" allows the Federal Reserve to respond flexibly to all relevant information in achieving its dual mandate of maximum employment and price stability. In contrast, a simple "instrument" rule such as a Taylor-type rule restricts the...