We define and study transparency, credibilitym and reputation in a model where the central bank's characteristics are unobservable to the private sector and are inferred from the policy outcome. A low-credibility bank optimally conducts a more inflationary policy than a high-credibility bank, in...

Policy rules that are consistent with inflation targeting are examined in a small macroeconometric model of the US economy. We compare the properties and outcomes of explicit "instrument rules" as well as "targeting rules". The latter, which imply implicit instrument rules, may be closer to...

The paper extends previous analysis of closed-economy inflation targeting to a small open economy with forward-looking aggregate supply and demand with some microfoundations, and with stylized realistic lags in the different transmission channels for monetary policy. The paper compares targeting...

The paper discusses the choice between inflation targeting and monetary targeting as a strategy for the Eurosystem, the actual strategy the Eurosystem announced in the fall of 1998, the framework for policy decisions appropriate for achieving the goals of the Eurosystem, the role of exchange...

The purpose of the paper is to survey and discuss inflation targeting in the context of monetary policy rules. The paper provides a general discussion of monetary policy rules, attempts to clarify the essential characteristics of inflation targeting, compares inflation targeting to other...

Using a small empirical model of inflation, output, and money estimated on U.S. data, we compare the relative performance of monetary targeting and inflation targeting. The results show that monetary targeting would be quite inefficient, with both higher inflation and output variability. This is...

The so-called P* model is frequently used or referred to in discussions of monetary targeting. This gives the impression that the P* model might provide some rationaly for monetary targeting or for the monetary reference value used by the Eurosystem. The P* model implies that inflation is...

Can higher inflation diminish the government debt and contribute to financing the budget deficit? And how do these public finance concerns influence inflationary expectations?

By driving a wedge between the marginal returns to real and financial capital, inflation distorts production. The elimination of this distorsion increases both the level and the rate of growth of output. First, increased price stability improves the utilization of capital and thus increases the...