Working Paper

Shifts in the Inflation Target and Communication of Central Bank Forecasts

Kiel Working Papers, 1319

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 briefy discusses how disclosure of forecasts may be beneficial for a society that is more concerned about inflation stabilization

than the central bank.

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Publication Date
JEL Classification
E42, E52, E58