Inflation targeting : a framework for communication
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Date
Authors
Demertzis, Maria
Viegi, Nicola
Journal Title
Journal ISSN
Volume Title
Publisher
Berkeley Electronic Press
Abstract
We analyze how the provision of an explicit numerical inflation target provides a focal point for agents’ expectations when information is imperfect. Communicating a target and a tolerance band around it provides a clear framework with which to evaluate monetary policy outcomes. We
show how inflation targeting exploits the self-reinforcing loop between success and credibility to help the Central Bank endure large and long lasting shocks. Last, we derive the optimal band width around the target, which exploits the benefits of providing a focal point while maximizing the probability of success.
Description
Keywords
Focal points, Credibility, Optimal band-width
Sustainable Development Goals
Citation
Maria Demertzis and Nicola Viegi (2009) “Inflation Targeting: A Framework for Communication,” The B.E. Journal of Macroeconomics: Vol. 9: Iss. 1 (Topics), Article 44. Available at: http://www.bepress.com/bejm/vol9/iss1/art44