This paper computes the welfare consequences, for a representative agent, of a shift in the inflation target of monetary authorities. The welfare computations are conducted first by comparing the two steady states that the different inflation targets entail, and next by accounting for the...

This paper compares the properties of interest rate rules such as simple Taylor rules and rules that respond to price-level fluctuations — called Wicksellian rules — in a basic forward-looking model. By introducing appropriate history dependence in policy, Wicksellian rules perform better...

Within a simple New Keynesian model emphasizing forward-looking behavior of private agents, I evaluate optimal nominal income growth targeting versus optimal inflation targeting. When the economy under consideration is mainly subject to shocks that do not involve monetary policy trade-offs for...

Recently, Svensson (1997) has shown that a combination of state-contingent inflation targeting and central banker conservatism produces optimal monetary policy if employment is persistent. We argue that the state-contingent nature of the scheme may undermine its credibility. We then show that...

This paper deals with a "new" type of monetary policy making: Inflation Targeting (IT). It attempts to identify reasons for which countries might be inclined to adopt this framework for monetary policy. By reviewing recent experience of inflation targeting countries, the paper outlines the major...