Inflation-Forecast-Based Rules and Indeterminacy : A Puzzle and a Resolution ∗

  title={Inflation-Forecast-Based Rules and Indeterminacy : A Puzzle and a Resolution ∗},
  author={Paul L Levine and Peter McAdam and Joseph Pearlman},
We examine an interesting puzzle in monetary economics between what monetary authorities claim (namely, to be forward looking and preemptive) and the poor stabilization properties routinely reported for forecast-based rules. Our resolution is that central banks should be viewed as following “Calvo-type” inflation-forecast-based (IFB) interest rate rules that depend on a discounted sum of current and future rates of inflation. Such rules might be regarded as both within the legal frameworks and… CONTINUE READING
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