{
  "title": "Inflation Targeting with NAIRU Uncertainty and Endogenous Policy Credibility",
  "publication": "IMF Working Papers, January 1, 2001",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/30/inflation-targeting-with-nairu-uncertainty-and-endogenous-policy-credibility-3962",
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  "summary": "Stochastic simulations are employed to compare performance of monetary policy rules in linear and nonlinear variants of a small macro model with NAIRU uncertainity under different assumptions about the way inflation expectations are formed.",
  "sections": [
    {
      "heading": "Summary",
      "content": "- Stochastic simulations are employed to compare performance of monetary policy rules in linear and nonlinear variants of a small macro model with NAIRU uncertainity under different assumptions about the way inflation expectations are formed.\n- Cases in which policy credibility is ignored or treated as exogenous are distinguished from cases in which credibility and inflation expectations respond endogenuously.\n- Policy credibility strengthens the case for forward-looking inflation forecast based rules relative to backward-looking Taylor rules."
    },
    {
      "heading": "Methodology and Model Features",
      "content": "- Approach: Stochastic simulations.\n- Model: Small macro model with linear and nonlinear variants.\n- Key uncertainty: NAIRU uncertainity.\n- Expectations frameworks compared:\n  - Cases with credibility ignored or treated as exogenous.\n  - Cases with credibility and inflation expectations responding endogenously.\n- Policy rules evaluated:\n  - Forward-looking inflation forecast based (IFB) rules.\n  - Backward-looking Taylor rules."
    },
    {
      "heading": "Principal Findings",
      "content": "- Endogenous policy credibility affects the relative performance of monetary policy rules.\n- Strengthening policy credibility increases the relative attractiveness of forward-looking inflation forecast based rules over backward-looking Taylor rules."
    },
    {
      "heading": "Policy Implications and Recommendations",
      "content": "- Consideration of endogenous credibility is important when assessing monetary policy rules.\n- Forward-looking inflation forecast based rules gain support when policy credibility is accounted for endogenously.\n\n---\n\n Content in this bundle\n\n- Inflation Targeting with NAIRU Uncertainty and Endogenous Policy Credibilty - WP/01/7\n  - Inflation Targeting with NAIRU Uncertainty and Endogenous Policy Credibilty - WP/01/7 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Inflation Targeting with NAIRU Uncertainty and Endogenous Policy Credibilty - WP/01/7 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/inflation-targeting-with-nairu-uncertainty-and-endogenous-policy-credibility-3962"
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    "[Markdown version](/en/publications/wp/issues/2016/12/30/inflation-targeting-with-nairu-uncertainty-and-endogenous-policy-credibility-3962/index.md)",
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    "Authors: Peter Isard, Douglas Laxton, Ann-Charlotte Eliasson",
    "Published: January 1, 2001",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451842418.001",
    "Stochastic simulations are employed to compare performance of monetary policy rules in linear and nonlinear variants of a small macro model with NAIRU uncertainity under different assumptions about the way inflation expectations are formed.",
    "Cases in which policy credibility is ignored or treated as exogenous are distinguished from cases in which credibility and inflation expectations respond endogenuously.",
    "Policy credibility strengthens the case for forward-looking inflation forecast based rules relative to backward-looking Taylor rules.",
    "Approach: Stochastic simulations.",
    "Model: Small macro model with linear and nonlinear variants.",
    "Key uncertainty: NAIRU uncertainity.",
    "Expectations frameworks compared:",
    "Policy rules evaluated:",
    "Endogenous policy credibility affects the relative performance of monetary policy rules.",
    "Strengthening policy credibility increases the relative attractiveness of forward-looking inflation forecast based rules over backward-looking Taylor rules.",
    "Consideration of endogenous credibility is important when assessing monetary policy rules.",
    "Forward-looking inflation forecast based rules gain support when policy credibility is accounted for endogenously.",
    "**Inflation Targeting with NAIRU Uncertainty and Endogenous Policy Credibilty - WP/01/7**"
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