The Nonlinear Phillips Curve and Inflation Forecast Targeting - Symmetric Versus Asymmetric Monetary Policy Rules

E. Schaling

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    Abstract

    We extend the Svensson (1997a) inflation forecast targeting framework with a convex Phillips curve. We derive an asymmetric target rule, that implies a higher level of nominal interest rates than the Svensson (1997a) forward looking version of the reaction function popularised by Taylor (1993). Extending the analysis with uncertainty about the output gap, we find that uncertainty induces a further upward bias in nominal interest rates. Thus, the implications of uncertainty for optimal policy are the opposite of standard multiplier uncertainty analysis.
    Original languageEnglish
    Place of PublicationTilburg
    PublisherMacroeconomics
    Number of pages27
    Volume1998-136
    Publication statusPublished - 1998

    Publication series

    NameCentER Discussion Paper
    Volume1998-136

    Keywords

    • inflation targets
    • nonlinearities
    • asymmetries
    • stochastic control

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