TY  - JOUR
AU  - Haldane, Andrew G
AU  - Batini, Nicoletta
TI  - Forward-Looking Rules for Monetary Policy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6543
PY  - 1998
Y2  - May 1998
DO  - 10.3386/w6543
UR  - http://www.nber.org/papers/w6543
L1  - http://www.nber.org/papers/w6543.pdf
N1  - Author contact info:
Andrew Haldane
Bank of England
London EC2R 8AH
E-Mail: andy.haldane@bankofengland.co.uk

Nicoletta Batini
Department of Economics
University of Surrey
Guildford
Surrey GU2 7SX
UK
Tel: 44 0 1483 689380
Fax: 44 0 1483 689548
E-Mail: nbatini@imf.org
M1  - published as Nicoletta Batini, Andrew Haldane. "Forward-Looking Rules for Monetary Policy," in John B. Taylor, editor, "Monetary Policy Rules" University of Chicago Press (1999)

AB  - This paper evaluates a class of simple monetary policy rules which feed back from explicit forecasts of future inflation - inflation forecast-based (IFB) rules.  These rules aim to mimic current monetary policy practices among the inflation-targeting countries, where policy decisions are based on inflation forecasts.  The rules themselves are evaluated using simulations from a small, rational expectations, open-economy macro-model. IFB rules are found to perform well in comparison with other simple rules, such as the Taylor rule.  The reasons for this are: first, because they embody the lags in monetary transmission, aligning explicitly the control and the feedback variables of the policymaker; second, because IFB rules are capable of smoothing output by as much as is possible with rules which target output directly - for example, through variations in the forecast horizon; and third, because IFB rules implicitly condition on all state variables, and thus are information-efficient.  For these reasons, inflation-targeting rules with an explicitly forward-looking dimension are found to take us within reach of the fully-optimal rule.
ER  -