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Journal of Economic Literature: Vol. 41 No. 2 (June 2003)
JEL Volume. 41, Issue 2 | 
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JEL Indexes (Members Only)What Is Wrong with Taylor Rules? Using Judgment in Monetary Policy through Targeting Rules
Article Citation
Svensson, Lars E. 2003. "What Is Wrong with Taylor Rules? Using Judgment in Monetary Policy through Targeting Rules ."
The Journal of Economic Literature,
41(2): 426-477.
DOI: 10.1257/002205103765762734
DOI: 10.1257/002205103765762734
Abstract
It is argued that inflation targeting is best understood as a commitment to a targeting rule rather than an instrument rule, either a general targeting rule (explicit objectives for monetary policy) or a specific targeting rule (a criterion for the forecasts of the target variables to be fulfilled), essentially the equality of the marginal rates of transformation and substitution between the target variables. Targeting rules allow the use of judgment and extra model information, are more robust and easier to verify than optimal instrument rules, and can bring the economy close to the socially optimal equilibrium.
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Authors
Svensson, Lars E. O.
