Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/324997 
Year of Publication: 
2025
Series/Report no.: 
CESifo Working Paper No. 12006
Publisher: 
CESifo GmbH, Munich
Abstract: 
Under inflation forecast targeting, central banks such as the ECB adjust policy to keep expected inflation on target. We evaluate the ECB's inflation forecasts: they are unbiased and efficient but contain little information at forecast horizons beyond three quarters. In a New Keynesian model with transmission lags, inflation forecast targeting is indeed effective in stabilizing inflation–provided there is no forward-looking behavior–though the information content of forecasts is unrealistically high. In the presence of forward-looking behavior, the information content declines because monetary policy becomes more effective in meeting the target, but inflation is best stabilized by targeting current inflation.
Subjects: 
inflation targeting
inflation forecast targeting
monetary policy
inflation forecast
information content
target horizon
ECB
JEL: 
C53
E52
Document Type: 
Working Paper
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