Kiel Working Papers, Kiel Institute for World Economics
No 1319:
Shifts in the Inflation Target and Communication of Central Bank Forecasts
Mewael F. Tesfaselassie
Abstract: In a model with forward-looking expectations, the paper
examines communication of central bank forecasts when the inflation target
is subject to unobserved changes. It characterizes the effect of disclosure
of forecasts on inflation and output stabilization and the choice of an
active versus passive monetary policy. The paper shows that these choices
depend on the slope of the Phillips curve, the central bank's preference
weight on inflation relative to output and the ratio of the variability of
the inflation target relative to the cost-push disturbance. The paper
briefly discusses how disclosure of forecasts may be beneficial for a
society that is more concerned about inflation stabilization than the
central bank.
Keywords: Forward-looking expectations, inflation target, central bank fore- casts, disclosure policy; (follow links to similar papers)
JEL-Codes: E42,; E43,; E52,; E58; (follow links to similar papers)
23 pages, March 2007
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