Open-Economy Inflation Targeting
TL;DR: The authors extended previous analysis of closed-economy inflation targeting to a small open economy with forward-looking aggregate supply and demand, and with stylized realistic lags in the different transmission channels for monetary policy.
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Abstract: The paper extends previous analysis of closed-economy inflation targeting to a small open economy with forward-looking aggregate supply and demand, and with stylized realistic lags in the different transmission channels for monetary policy. The paper compares targeting of CPI and domestic inflation, strict and exhibitable inflation targeting, inflation targeting instrument rules and the Taylor Rule, and inflation targeting and exchange-rate targeting. The paper also clarifies how a conditional inflation forecasts can be consistently constructed and used as an intermediate target variable when there are forward-looking expectations.
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Inflation Targeting: A New Framework for Monetary Policy?
TL;DR: Inflation targeting as discussed by the authors is a new strategy for monetary policy known as "inflation targeting," which has sparked much interest and debate among central bankers and monetary economists in recent years, characterized by the announcement of official target ranges for the inflation rate at one or more horizons, and explicit acknowledgment that low and stable inflation is the overriding goal of monetary policy.