Inflation Targeting: Should It Be Modeled as an Instrument Rule or a Targeting Rule?

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Lars E.O Svensson
Princeton University,
CEPR and NBER

European Economic Review 46 (2002) 771-780

Abstract

The paper discusses how current inflation targeting should be modeled, and argues that it is better represented as a commitment to a targeting rule (a rule specifying operational objectives for monetary policy or a condition for the target variables), than as a commitment to a simple instrument rule (like a Taylor rule).

JEL Classification: E42, E52, E58

Keywords: Inflation targeting, monetary policy rules.