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 …

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 …

-rate targeting, 2) monetary targeting, 3) inflation targeting, and 4) monetary policy with an implicit but not an explicit nominal …

inflation and aggregate output. Our main findings are threefold. First, monetary policy affects the probability of a crisis both … central bank can both reduce the probability of a crisis and increase welfare by departing from strict inflation targeting and …