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Optimal inflation Targeting: Further Developments of Inflation Targeting

In: Monetary Policy under Inflation Targeting

Author

Listed:
  • Lars E. O. Svensson

    (Central Bank of Sweden)

Abstract
The introduction of inflation targeting has led to major progress in practical monetary policy. Nevertheless, inflation-targeting central banks can make substantial additional progress by being more specific, systematic, and transparent about their operational objectives (in the form of using an explicit intertemporal loss function), their forecasts (in the form of deciding on optimal projections of the instrument rate and the target variables), and their communication (in the form of announcing optimal projections of the instrument rate and target variables). Furthermore, progress can be made by incorporating central-bank judgment and model uncertainty in a systematic way in the forecasting and decision process. In particular, incorporating model uncertainty allows the central bank to do more general “distribution forecast targeting” rather than the more restrictive “mean forecast targeting” under the assumption of approximate certainty equivalence.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Lars E. O. Svensson, 2007. "Optimal inflation Targeting: Further Developments of Inflation Targeting," Central Banking, Analysis, and Economic Policies Book Series, in: Frederic S. Miskin & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Monetary Policy under Inflation Targeting, edition 1, volume 11, chapter 6, pages 187-225, Central Bank of Chile.
    • Handle: RePEc:chb:bcchsb:v11c06pp187-225
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    File URL: https://si2.bcentral.cl/public/pdf/banca-central/pdf/v11/187-225.pdf
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    References listed on IDEAS

    as
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