Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/209784 
Authors: 
Year of Publication: 
2000
Series/Report no.: 
Arbeidsnotat No. 2000/11
Publisher: 
Norges Bank, Oslo
Abstract: 
This paper examines the performance of inflation forecast feedback rules in a two-sector, calibrated model of the U.K. economy. Under such rules, the interest rate responds to the deviation of the unchanged-interest-rate forecast of inflation from the inflation target. We find that this procedure may produce a high degree of nominal and real stability, even outperforming the optimal discretionary (flexible) inflation targeting strategy. In order to take adequate account of the exchange rate channel, the feedback horizon will need to be short. A feedback horizon of a year or more creates exchange rate volatility, resulting in higher variability in inflation and traded sector output.
Subjects: 
monetary policy
inflation targeting
inflation feedback rules
simple rules
small open economy
JEL: 
E61
E47
E43
Persistent Identifier of the first edition: 
ISBN: 
82-7553-160-8
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper
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