Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets

Working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 28 November 1996

Working Paper No. 56
By Lars E O Svensson

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. Money growth or exchange rate targeting is generally inferior than inflation targeting and leads to higher inflation variability. Commitment to 'target rules' may be better than commitment to 'instrument rules'.

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