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Inflation-forecast targeting : applying the principle of transparency / Kevin Clinton [and others].

Contributor(s): Material type: TextTextSeries: IMF working paper ; WP/15/132.Publication details: [Washington, D.C.] : International Monetary Fund, Research Department, 2015.Description: 1 online resource (56 pages)Content type:
  • text
Media type:
  • computer
Carrier type:
  • online resource
ISBN:
  • 1513547658
  • 1513557653
  • 9781513557656
  • 9781513544755
  • 1513544756
  • 1513582925
  • 9781513582924
  • 9781513547657
Subject(s): Additional physical formats: Print version:: Inflation-Forecast Targeting : Applying the Principle of Transparency.DDC classification:
  • 338.5
LOC classification:
  • HG229
Online resources:
Contents:
Cover; CONTENTS; I. INTRODUCTION; II. SOME HISTORY OF INFLATION TARGETING; III. BACKGROUND ON INFLATION-FORECAST TARGETING; III. 1 Defining IFT; III. 2 Long-run expectations anchor to IFT; III. 2.1 The anchor; III. 2.2 The transmission mechanism; Figures; Figure 1. Monetary Policy Model: IFT Feedback Response and Transmission; III. 2.3 Endogenous policy response; III. 2.4 Publication of endogenous interest rate forecasts; IV. USING IFT TO HELP AVOID DARK CORNERS; IV. 1 Implied forward guidance in IFT; IV. 2 Deflation risk in Japan and the euro area.
Figure 2. Inflation Expectations and Unemployment Rate in JapanTABLES; Table 1. Selected Economic Indicators for Japan and Canada; Figure 3. Japan Sectoral Stock Market Indices versus Exchange Rate; Figure 4. Inflation Expectations and Unemployment Rate in the Euro Area; Figure 5. Evolution of Policy Rates in US, Euro Area, Japan, UK and the Czech; Table 2. Consensus CPI Inflation Expectations; Figure 6. Consensus Forecasts for Wage and Consumption in Major Economies; V. ILLUSTRATIVE EXAMPLES OF POLICY-MAKING STRATEGY BASED ON A SIMPLE MODEL; V.1 Introduction; V.2 Outline of the model.
v. 3 Illustrative simulation resultsV. 3.1 Policy response to current economic situation; Figure 7. Illustrative Example of the Current Situation: IFB Reaction Function versus a Dual; Figure 8. Comparison of 4 Reaction Functions for the Current Situation (Part 1); Figure 9. Comparison of 4 Reaction Functions for the Current Situation (Part 2); V.3.2 Demand shocks; Figure 10. Vulnerabilities Related to the ZLB under IFB Reaction Function; Figure 11. Vulnerabilities Related to the ZLB under Dual Mandate CB Optimal Control (DM1; V.3.3 Supply shocks.
Figure 12. Comparison of 4 Reaction Functions for Illustrative Nasty Supply Shock (Part 1)Figure 13. Comparison of 4 Reaction Functions for Illustrative Nasty Supply Shock (Part 2); V.3.4 A summing up; V.4 Confidence intervals and alternative simulations; Figure 14. Illustrative Examples of the Current Situation with Confidence Bands; Figure 15. Illustrative Examples of the Current Situation with Confidence Bands; Figure 16. Illustrative Examples of the Current Situation with Confidence Bands; Figure 17. Illustrative Examples of Nasty Supply Shock with Confidence Bands.
Figure 18: Illustrative Examples of Nasty Supply Shock with Confidence BandsFigure 19: Illustrative Examples of Nasty Supply Shock with Confidence Bands; VI. CONCLUSION; References; References.
Summary: "Many central banks in emerging and advanced economies have adopted an inflation-forecast targeting (IFT) approach to monetary policy, in order to successfully establish a stable, low-inflation environment. To support policy making, each has developed a structured system of forecasting and policy analysis appropriate to its needs. A common component is a model-based forecast with an endogenous policy interest rate path. The approach is characterized, among other things, by transparent communications - some IFT central banks go so far as to publish their policy interest rate projection. Some elements of this regime, although a work still in progress, are worthy of consideration by central banks that have not yet officially adopted full-fledged inflation targeting."--Abstract
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"June 2015."

"Many central banks in emerging and advanced economies have adopted an inflation-forecast targeting (IFT) approach to monetary policy, in order to successfully establish a stable, low-inflation environment. To support policy making, each has developed a structured system of forecasting and policy analysis appropriate to its needs. A common component is a model-based forecast with an endogenous policy interest rate path. The approach is characterized, among other things, by transparent communications - some IFT central banks go so far as to publish their policy interest rate projection. Some elements of this regime, although a work still in progress, are worthy of consideration by central banks that have not yet officially adopted full-fledged inflation targeting."--Abstract

Cover; CONTENTS; I. INTRODUCTION; II. SOME HISTORY OF INFLATION TARGETING; III. BACKGROUND ON INFLATION-FORECAST TARGETING; III. 1 Defining IFT; III. 2 Long-run expectations anchor to IFT; III. 2.1 The anchor; III. 2.2 The transmission mechanism; Figures; Figure 1. Monetary Policy Model: IFT Feedback Response and Transmission; III. 2.3 Endogenous policy response; III. 2.4 Publication of endogenous interest rate forecasts; IV. USING IFT TO HELP AVOID DARK CORNERS; IV. 1 Implied forward guidance in IFT; IV. 2 Deflation risk in Japan and the euro area.

Figure 2. Inflation Expectations and Unemployment Rate in JapanTABLES; Table 1. Selected Economic Indicators for Japan and Canada; Figure 3. Japan Sectoral Stock Market Indices versus Exchange Rate; Figure 4. Inflation Expectations and Unemployment Rate in the Euro Area; Figure 5. Evolution of Policy Rates in US, Euro Area, Japan, UK and the Czech; Table 2. Consensus CPI Inflation Expectations; Figure 6. Consensus Forecasts for Wage and Consumption in Major Economies; V. ILLUSTRATIVE EXAMPLES OF POLICY-MAKING STRATEGY BASED ON A SIMPLE MODEL; V.1 Introduction; V.2 Outline of the model.

v. 3 Illustrative simulation resultsV. 3.1 Policy response to current economic situation; Figure 7. Illustrative Example of the Current Situation: IFB Reaction Function versus a Dual; Figure 8. Comparison of 4 Reaction Functions for the Current Situation (Part 1); Figure 9. Comparison of 4 Reaction Functions for the Current Situation (Part 2); V.3.2 Demand shocks; Figure 10. Vulnerabilities Related to the ZLB under IFB Reaction Function; Figure 11. Vulnerabilities Related to the ZLB under Dual Mandate CB Optimal Control (DM1; V.3.3 Supply shocks.

Figure 12. Comparison of 4 Reaction Functions for Illustrative Nasty Supply Shock (Part 1)Figure 13. Comparison of 4 Reaction Functions for Illustrative Nasty Supply Shock (Part 2); V.3.4 A summing up; V.4 Confidence intervals and alternative simulations; Figure 14. Illustrative Examples of the Current Situation with Confidence Bands; Figure 15. Illustrative Examples of the Current Situation with Confidence Bands; Figure 16. Illustrative Examples of the Current Situation with Confidence Bands; Figure 17. Illustrative Examples of Nasty Supply Shock with Confidence Bands.

Figure 18: Illustrative Examples of Nasty Supply Shock with Confidence BandsFigure 19: Illustrative Examples of Nasty Supply Shock with Confidence Bands; VI. CONCLUSION; References; References.

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