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Inflation Targeting: Some Extensions
Author(s) -
Svensson Lars E. O.
Publication year - 1999
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/1467-9442.00160
Subject(s) - inflation (cosmology) , economics , real interest rate , monetary policy , inflation targeting , smoothing , econometrics , interest rate , monetary economics , mathematics , statistics , physics , theoretical physics
Previous analyses of the implementation of inflation targeting are extended to monetary policy responses to different shocks, consequences of model uncertainty, and effects of interest rate smoothing and stabilization. Model uncertainty, output stabilization, and interest rate stabilization or smoothing all call for a more gradual adjustment of the conditional inflation forecast toward the inflation target. The conditional inflation forecast is the natural intermediate target during inflation targeting. The optimal way of reacting to shocks is hence to check how they affect the inflation forecast and then take the appropriate action. JEL classification : E 42; E 52; E 58