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 …

stable inflation behavior will be generated -- is incorrect. This is because New Keynesian (NK) models are typically … consistent with the existence of RE paths with explosive inflation rates (in addition to one or more stable paths) that normally … imply the absence of explosive inflation. That result does not, however, justify negative conclusions about NK analysis. For …

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

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 …

Evaluating inflation-targeting monetary policy is more complicated than checking whether inflation has been on target …, because inflation control is imperfect and flexible inflation targeting means that deviations from target may be deliberate in … variability of the inflation-gap and output-gap forecasts can be used to evaluate policy ex ante, that is, taking into account the …

inflation target. The first two strategies restore the Taylor principle as a sufficient condition for stabilizing expectations …. In contrast, in economies with persistent shocks, communicating the inflation target fails to protect against … policy strategy: announcing an inflation target is not enough to stabilize expectations -- one must also announce how this …