Abstract

Policy rules that are consistent with ination 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 ination 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.

Citations