"Forecast targeting," forward-looking monetary policy that uses central-bank judgment to construct optimal policy projections of the target variables and the instrument rate, may perform substantially better than monetary policy that disregards judgment and follows a given instrument rule. This...

This paper demonstrates how time consistency of the Ramsey policy - the optimal fiscal and monetary policy under commitment - can be achieved. Each government should leave its successor with a unique maturity structure for the nominal and indexed debt, such that the marginal benefit of a...

McCallum and Nelson's (2004) criticism of targeting rules for the analysis of monetary policy is rebutted. First, McCallum and Nelson's preference to study the robustness of simple monetary-policy rules is no reason at all to limit attention to simple instrument rules; simple targeting rules may...

An independent central bank can manage its balance sheet and its capital so as to commit itself to a depreciation of its currency and an exchange-rate peg. This way, the central bank can implement the optimal escape from a liquidity trap, which involves a commitment to higher future inflation....

A simple and transparent framework for cost-benefit analysis of \leaning against the wind" (LAW), that is, tighter monetary policy for financial-stability purposes, is presented. LAW has obvious costs in the form of a weaker economy if no crisis occurs and possible benefits in the form of a...

Forward guidance about future policy settings, in the form of a published policy-rate path, has for many years been a natural part of normal monetary policy for several central banks, including the Reserve Bank of New Zealand and the Swedish Riksbank. More recently, the Federal Reserve has...

In the summer of 2010, the Federal Reserve's and the Swedish Riksbank's inflation forecasts were below the former's mandate-consistent rate and the latter's target, respectively, and their unemployment forecasts were above sustainable rates. Given the mandates of the Federal Reserve and the...

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 degree of transparency and accountability....

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 order to stabilize the real economy. A modified...

This paper specifies a new convenient algorithm to construct policy projections conditional on alternative anticipated policy-rate paths in linearized dynamic stochastic general equilibrium (DSGE) models, such as Ramses, the Riksbank's main DSGE model. Such projections with anticipated...