Inflation-Forecast Targeting: Applying the Principle of Transparency

IMF Working Papers, June 24, 2015

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Canonical URL: Inflation-Forecast Targeting: Applying the Principle of Transparency

Authors: Kevin Clinton, Charles Freedman, Michel Juillard, Ondrej Kamenik, Douglas Laxton, Hou Wang
Published: June 24, 2015
Series: IMF Working Papers
DOI: https://doi.org/10.5089/9781513557656.001

Many central banks in emerging and advanced economies have adopted an inflation-forecast targeting (IFT) approach to monetary policy to establish a stable, low-inflation environment.
Each central bank 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 IFT approach is characterized by transparent communications; some IFT central banks 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.

Inflation-Forecast Targeting (IFT) as a monetary policy framework for stabilizing inflation at low levels.
Structured forecasting and policy analysis systems tailored to central bank needs.
Model-based forecasts that include an endogenous policy interest rate path.
Transparent communications as a defining characteristic; publication of policy interest rate projections by some IFT central banks.
Elements of IFT considered adaptable for central banks not formally adopting full inflation targeting.

Subjects: Banking, Central bank policy rate, Financial services, Inflation, Inflation targeting, Monetary policy, Output gap, Prices, Production, Real interest rates
Keywords: Central bank policy rate, exchange rate, fed funds rate, Global, Inflation, Inflation Targeting, interest rate path, Monetary Policy, nominal interest rate, Optimal Control, Output gap, price level, rate of inflation, reaction function, Real interest rates, transmission mechanism, WP

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IMF Working Papers — "Inflation-Forecast Targeting: Applying the Principle of Transparency", Working Paper No. 2015/132, June 24, 2015.