scholarly journals The Role of Inflation Target Adjustment in Stabilization Policy

2019 ◽  
Author(s):  
Yunjong Eo ◽  
Denny Lie
Keyword(s):  
Stabilization Policy ◽  
Inflation Target

scholarly journals Robustly Optimal Monetary Policy with Near-Rational Expectations

2010 ◽  
Vol 100 (1) ◽  
pp. 274-303 ◽  
Author(s):  
Michael Woodford
Keyword(s):  
Monetary Policy ◽  
Private Sector ◽  
Central Bank ◽  
Optimal Policy ◽  
Rational Expectations ◽  
Stabilization Policy ◽  
Optimal Monetary Policy ◽  
Inflation Target ◽  
Model Consistency ◽  
Long Run

The paper considers optimal monetary stabilization policy in a forward-looking model, when the central bank recognizes that private sector expectations need not be precisely model-consistent, and wishes to choose a policy that will be as good as possible in the case of any beliefs that are close enough to model-consistency. It is found that commitment continues to be important for optimal policy, that the optimal long-run inflation target is unaffected by the degree of potential distortion of beliefs, and that optimal policy is even more history-dependent than if rational expectations are assumed. (JEL C62, D84, E13, E31, E32, E52)

Inflation Targeting: Fix It, Don’t Scrap It

2014 ◽  
pp. 44-55 ◽  
Author(s):  
M. Woodford
Keyword(s):  
Central Bank ◽  
Inflation Targeting ◽  
Public Confidence ◽  
Stabilization Policy ◽  
Macroeconomic Stabilization ◽  
Inflation Target

The paper analyzes the recent suggestions to abandon inflation targeting. The author shows that the idea of an inflation target should still be an inherent element of macroeconomic stabilization policy, but the practice of inflation targeting should be improved following the post-crisis realities. The key goal would be to maintain public confidence in the activities of the central bank.

scholarly journals Credible Commitment to Optimal Escape from a Liquidity Trap: The Role of the Balance Sheet of an Independent Central Bank

2007 ◽  
Vol 97 (1) ◽  
pp. 474-490 ◽  
Author(s):  
Olivier Jeanne ◽  
Lars E. O Svensson
Keyword(s):  
Central Bank ◽  
Optimal Policy ◽  
Balance Sheet ◽  
Central Banks ◽  
Credible Commitment ◽  
Inflation Target ◽  
Liquidity Trap ◽  
Currency Depreciation ◽  
Ex Post

Central banks target CPI inflation; independent central banks are concerned about their balance sheet and the level of their capital. The first fact makes it difficult for a central bank to implement the optimal escape from a liquidity trap, because it undermines a commitment to overshoot the inflation target. We show that the second fact provides a solution. Capital concerns provide a mechanism for an independent central bank to commit to inflate ex post. The optimal policy can take the form of a currency depreciation combined with a crawling peg, a policy advocated by Svensson as the “Foolproof Way” to escape from a liquidity trap. (JEL E31, E52, E58, E62)

scholarly journals The implementation of stabilization policy

2021 ◽  
Vol 16 (2) ◽  
pp. 677-716
Author(s):  
Olivier Loisel
Keyword(s):  
Rational Expectations ◽  
Local Equilibrium ◽  
Policy Instrument ◽  
New Keynesian ◽  
Stabilization Policy ◽  
Keynesian Model ◽  
Dynamic Stochastic ◽  
Business Cycle Model ◽  
Feasible Path

In locally linearized dynamic stochastic rational‐expectations models, I introduce the concepts of feasible paths (paths on which the policy instrument can be expressed as a function of the policymaker's observation set) and implementable paths (paths that can be obtained, in a minimally robust way, as the unique local equilibrium under a policy‐instrument rule consistent with the policymaker's observation set). I show that, for relevant observation sets, the optimal feasible path under monetary policy can be non‐implementable in the new Keynesian model, while constant‐debt feasible paths under tax policy are always implementable in the real business cycle model. The first result sounds a note of caution about one of the main lessons of the new Keynesian literature, namely the importance for central banks to track some key unobserved exogenous rates of interest, while the second result restores to some extent the role of income or labor‐income taxes in safely stabilizing public debt. For any given implementable path, I show how to design arithmetically a policy‐instrument rule consistent with the policymaker's observation set and implementing this path as the robustly unique local equilibrium.

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