The Inflation Forecast and the Loss Function

RESEARCH - A new paper by Lars E.O Svensson, Princeton University, CEPR and NBER, December 2001.

Abstract

This paper argues that inflation-targeting central banks should announce explicit loss function with numerical relative weights on output-gap stabilization and use and announce optimal time-varying instrument-rate paths and corresponding inflation and output-gap forecasts. Simple voting procedures for forming the Monetary Policy Committee's aggregate loss function and time-varying interest

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