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The B.E. Journal of Macroeconomics

Editor-in-Chief: Cavalcanti, Tiago / Kambourov, Gueorgui

Ed. by Abraham, Arpad / Carceles-Poveda , Eva / Debortoli, Davide / Lambertini, Luisa / Nimark, Kristoffer / Wang, Pengfei

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5-year IMPACT FACTOR: 0.376

CiteScore 2016: 0.36

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Source Normalized Impact per Paper (SNIP) 2016: 0.272

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Inflation Targeting: A Framework for Communication

Maria Demertzis / Nicola Viegi
Published Online: 2009-12-18 | DOI: https://doi.org/10.2202/1935-1690.1992

We analyze how the provision of an explicit numerical inflation target provides a focal point for agents' expectations when information is imperfect. Communicating a target and a tolerance band around it provides a clear framework with which to evaluate monetary policy outcomes. We show how inflation targeting exploits the self-reinforcing loop between success and credibility to help the Central Bank endure large and long lasting shocks. Last, we derive the optimal band width around the target, which exploits the benefits of providing a focal point while maximizing the probability of success.

Keywords: monetary policy; focal points; credibility; optimal band-width

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Published Online: 2009-12-18

Citation Information: The B.E. Journal of Macroeconomics, Volume 9, Issue 1, ISSN (Online) 1935-1690, DOI: https://doi.org/10.2202/1935-1690.1992.

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©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston. Copyright Clearance Center

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