Discussion or working paper
Shifts in the Inflation Target and Communication of Central Bank Forecasts
AbstractIn 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.
KeywordsForward-looking expectations, inflation target, central bank forecasts, disclosure policy
JEL classificationE42, E52, E58