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.