Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/82385
Authors: 
Svensson, Lars E. O.
Year of Publication: 
1999
Series/Report no.: 
Sveriges Riksbank Working Paper Series 91
Abstract: 
This paper discusses how price stability can be defined and how price stability can be maintained in practice. Some lessons for the Eurosystem are also considered. With regard to defining price stability, the choice between price-level stability and low (including zero) inflation and the decisions about the price index, the quantitative target and the role of output stabilization are examined. With regard to maintaining price stability, three main alternatives are considered, namely a commitment to a simple instrument rule (like a Taylor rule), forecast targeting (like inflation-forecast targeting) and intermediate targeting (like money-growth targeting). A simple instrument rule does not provide a substitute for a systematic framework for monetary policy decisions. Such a framework is instead provided by forecast targeting. Forecast targeting can incorporate judgemental adjustments, extra-model information, and different indicators (including indicators of risks to price stability). By extending mean forecast targeting to distribution forecast targeting, nonlinearity, nonadditive uncertainty and model uncertainty can be incorporated. Eurosystem arguments in favor of its money-growth indicator and against inflation-forecast targeting are scrutinized and found unconvincing.
Subjects: 
Inflation targeting
Intermediate targeting
Monetary targeting
Eurosystem
JEL: 
E42
E52
E58
Document Type: 
Working Paper

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