banks set interest rate targets, and do not even pretend to control money supplies. How is inflation determined under an …We finally have a complete theory of inflation under interest rate targets, that mirrors the long-run neutrality and … frictionless limit of monetary theory: Inflation can be stable and determinate under interest rate targets, including a k percent …

approach gradually a new steady state with positive average inflation. Around that steady state, the optimal policy implies … well defined (second-best) paths for inflation and output in response to shocks to the natural rate. Under plausible …

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 …

, we document several potential fiscal dominance effects during 2000-2017 under Inflation Targeting (IT), and non …

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 …

solutions such as the conservative central banker and optimal inflation contracts. Our theoretical model also shows how an … inflation targeting range should be set and how it should respond to changes in the nature of shocks to the economy …

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 …