Inflation targeting is shown to imply inflation forecast targeting: the central bank's inflation forecast becomes an … explicit intermediate target. Inflation forecast targeting simplifies both implementation and monitoring of monetary policy …. The weight on output stabilization determines how quickly the inflation forecast is adjusted towards the inflation target …

heterogeneous inflation expectations. Expectations are updated through social dynamics and, with heterogeneity, not all firms choose … to operate, putting downward pressure on realized inflation. Our model rationalizes why countries stuck at the zero lower … bound have had a hard time increasing inflation without being aggressive. The same model also predicts that announcing an …

inflation (with base drift in the price level) and price-level stability (without such base drift) are compared, and a suitable … loss function (corresponding to flexible inflation targeting) is discussed, including the index and level for the inflation … price stability. The benefits of credibility (private inflation expectations coinciding with the inflation target) are …

This paper considers the problem of optimal long run monetary policy. It shows that optimal inflation policy involves … trading off two quite different considerations. First, increases in the rate of inflation tax the holding of many balances … of inflation raise capital intensity. As long as the economy has a capital stock short of the golden rule level …

Previous analysis of the implementation of inflation targeting is extended to monetary policy responses to different … stabilization or smoothing all call for a more gradual adjustment of the conditional inflation forecast toward the inflation target …. The conditional inflation forecast is the natural intermediate target during inflation targeting …

Observed inflation targets around the industrial world are concentrated at two percent per year. This chapter … investigates the extent to which the observed magnitudes of inflation targets are consistent with the optimal rate of inflation … inflation ranges from minus the real rate of interest to numbers insignificantly above zero. Furthermore, we argue that the zero …

-market economies. The chapter discusses the history, macroeconomic effects, theory, practice, and future of inflation targeting …Inflation targeting is a monetary-policy strategy that is characterized by an announced numerical inflation target, an … implementation of monetary policy that gives a major role to an inflation forecast and has been called forecast targeting, and a high …

In models with complete markets, targeting core inflation enables monetary policy to maximize welfare by replicating … stabilize price movements in the flexible price sector. Also, in the presence of financial frictions, stabilizing core inflation … frictions a welfare-maximizing central bank should adopt flexible headline inflation targeting--a target based on headline …

Should central banks, because of the zero-lower-bound problem, raise their inflation-rate targets? Several arguments … are relevant. (1) In the absence of the ZLB, the optimal steady-state inflation rate, according to standard New Keynesian … currency is feasible (even arguably attractive) and would remove the ZLB constraint on policy. (5) Increasing target inflation …

A number of commentators have argued that the desirability of inflation targeting as a framework for monetary policy … risks to financial stability, but that it is possible to generalize an inflation targeting framework to take account of … form of flexible inflation targeting; in particular, the paper proposes a target criterion that would still imply an …