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Policy Rules for Inflation Targeting

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  • Rudebusch, G.D.
  • Svensson, L.E.O.

Abstract

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 actual operating procedures of inflation-targeting central banks. WE find that inflation forecasts are central for good policy rules under inflation targeting. Some simple instrument and targeting rules do remarkably well relative to the optimal rule; others including some that are often used as representing inflation targeting, do less well.

Suggested Citation

  • Rudebusch, G.D. & Svensson, L.E.O., 1998. "Policy Rules for Inflation Targeting," Papers 637, Stockholm - International Economic Studies.
    • Handle: RePEc:fth:stocin:637
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    More about this item

    Keywords

    MONETARY POLICY ; CENTRAL BANKS ; INFLATION;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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