Inflation forecast targeting revisited
Under inflation forecast targeting, central banks such as the ECB adjust policy to keep expected inflation on target. We evaluate the ECB’s inflation forecasts: they are unbiased and efficient but contain little information at forecast horizons beyond three quarters. In a New Keynesian model with tr...
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| Main Authors: | , , |
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| Format: | Book/Monograph Working Paper |
| Language: | English |
| Published: |
Munich, Germany
Munich Society for the Promotion of Economic Research - CESifo GmbH
July 2025
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| Series: | CESifo working papers
12006 (2025) |
| In: |
CESifo working papers (12006 (2025))
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| Subjects: | |
| Online Access: | Verlag, kostenfrei: https://www.ifo.de/DocDL/cesifo1_wp12006.pdf Verlag, kostenfrei: https://www.ifo.de/en/publications/2025/working-paper/inflation-forecast-targeting-revisited Resolving-System, kostenfrei: https://hdl.handle.net/10419/324997 
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| Author Notes: | Christian Conrad, Zeno Enders, Gernot Müller |
| Summary: | Under inflation forecast targeting, central banks such as the ECB adjust policy to keep expected inflation on target. We evaluate the ECB’s inflation forecasts: they are unbiased and efficient but contain little information at forecast horizons beyond three quarters. In a New Keynesian model with transmission lags, inflation forecast targeting is indeed effective in stabilizing inflation—provided there is no forward-looking behavior—though the information content of forecasts is unrealistically high. In the presence of forward-looking behavior, the information content declines because monetary policy becomes more effective in meeting the target, but inflation is best stabilized by targeting current inflation. |
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| Physical Description: | Online Resource |