Forthcoming in European Economic Review In‡ation Forecast Targeting: Implementing and Monitoring In‡ation Targets

In‡ation targeting is shown to imply in‡ation forecast targeting: the central bank’s in‡ation forecast becomes an explicit intermediate target. In‡ation forecast targeting simpli...es both implementation and monitoring of monetary policy. The weight on output stabilization determines how quickly the in‡ation forecast is adjusted towards the in‡ation target. Money growth or exchange rate targeting is generally inferior than in‡ation targeting and leads to higher in‡ation variability. Commitment to ‘target rules’ may be better than commitment to ‘instrument rules’. JEL classi...cation: E42, E52, E58 ¤ I have bene...tted from discussions with and/or comments from Larry Ball, Claes Berg, Larry Christiano, Guy Debelle, Hans Dillén, Neil Ericsson, Jon Faust, Stanley Fischer, Marvin Goodfriend, Andrew Haldane, Mervyn King, Hans Lindberg, David Mayes, Stefan Mellin, Frederic Mishkin, Stefan Palmqvist, Torsten Persson, Glenn Rudebusch, Jürgen von Hagen, participants in seminars at the IIES, the CEPR-Banco de España European Summer Symposium on Macroeconomics, the Board of Governors, the Federal Reserve Bank of New York, the 1996 ISOM in Vienna, especially the discussants Kenneth Rogo¤ and Guido Tabellini, as well as the editors and two anonymous referees. I thank Charlotta Groth for research assistance, and Maria Gil and Christina Lönnblad for editorial and secretarial assistance.