Inflation forecast contracts

Inflation forecast contracts

We introduce a new type of incentive contract for central bankers: inflation forecast contracts, which make central bankers' remunerations contingent on the precision of their inflation forecasts. We show that such contracts enable central bankers to influence inflation expectations more effectively, thus facilitating more successful stabilization of current inflation. Inflation forecast contra...

Inflation Band Targeting and Optimal Inflation Contracts

The Inflation Forecast and the Loss Function *

This paper argues that inflation-targeting central banks should announce explicit loss function with numerical relative weights on output-gap stabilization and use and announce optimal time-varying instrument-rate paths and corresponding inflation and output-gap forecasts. Simple voting procedures for forming the Monetary Policy Committee’s aggregate loss function and time-varying instrument-ra...

Inflation Scares and Forecast-Based Monetary Policy

Central banks pay close attention to inflation expectations. In standard models, however, inflation expectations are tied down by the assumption of rational expectations and should be of little independent interest to policy makers. In this paper, we relax the assumption of rational expectations with perfect knowledge and reexamine the role of inflation expectations in the economy and in the co...

Can Age Structure Forecast Inflation Trends?

The demographic age structure influences the aggregate of individual economic decisions. Standard macroeconomic models imply that inflation pressure will covary with the age distribution unless accommodated by monetary policy. We estimate the relation between inflation and age structure on annual OECD data 1960–1994 for 20 countries. The result is an age pattern of inflation effects consistent ...